GLOBAL - Brazilian assets will be "attractive" over the next 12-18 months as the government ploughs public sector funds into infrastructure ahead of the 2013 World Cup, according to Lombard Street Research (LSR), an economics consultancy.

European pension schemes and insurers - including NEST and Standard Life Investments in the UK - have shown cautious interest in the most investable BRIC economy after China, lagging somewhat behind US counterparts such as CalPERS.

LSR analyst Melissa Kidd described the market as "a phoney victim" of the global economic crisis as a result of twin deficits, rapid credit growth and above-target inflation.

She said Brazil's strong external position, international reserves and primary fiscal surplus would mitigate the likely impact of increased public spending.

"Although Brazil will not escape the 2012 global downturn unscathed, it has learned from past experiences and is well-prepared for the ride," she said.

"Brazil has neither spent all its conventional monetary ammunition, nor maxed out on government credit."

Although a rise in government spending over the next year would likely cause some slippage in the primary surplus, maturities on sovereign debt are "relatively low" at 3.5 years. 

The central bank - whose pension fund last month acquired a 90% stake in a São Paulo industrial park - recently lifted macro prudential measures introduced last year to curb lending growth.

Although further tightening is likely, Kidd said it "would be positive for investors".
 
Only "memories of past crises" would tarnish investor perceptions of a market less beholden than other emerging markets to volatile portfolio inflows.
 
Should investor appetite for Brazilian assets wane, the country's international reserves would provide significant headroom for it to meet its financial obligations.

In a separate note, LSR's Diana Choyleva said China's decision to cut its bank reserve requirements last week suggested weaker growth than the government had acknowledged up to now.

Long cautious on China's structural economic problems, the Hong Kong-based analyst said: "Unfortunately, this is only the beginning. The final and decisive stage will come when the persistent and relentless global demand deficiency will finally pull the rug from underneath the saver economies, most notably China."

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