For a long time, federal bonds have been the stone in the Brazilian stock market’s shoe. With their lavish interest rates, they beckon to Brazilian savers with a siren song of daily liquidity, moderate risk and magnificent returns. It’s no coincidence that over time, high interest became the go–to explanation for the smallness of Brazil’s stock market. Why would anyone take a chance on stocks when DI funds, backed by those generous federal bonds, were a zero–worry investment with guaranteed satisfactory returns?


Yet the easy money couldn’t flow forever, as investment professionals knew all too well. And this year, there are strong signals that Brazil’s effective rate of interest — i.e., official interest minus inflation — may drop to a new low in the near future. What does this mean for the country’s investment fund industry and for you, the investor with an interest in Brazil? The story on page 4, by reporter Bruna Maia, outlines some of the prospects for the new era.

However, we should note that despite the news being eagerly awaited by Brazilian equity investment agents, the market was still caught by surprise. It would appear that the years of sky–high interest were not enough for Brazil to prepare its stock market for maturity. In a country of 191 million people, only 575,000 invest in stocks. Whether due to meager savings, leftover trauma from hyperinflation in the 80s and early 90s, or a lack of financial education, Brazil’s individual investors are simply not used to buying stocks.

From the perspective of listed companies, progress has been insufficient as well. The comeback of IPOs was a fabulous achievement, but the bottom line is, no more than 467 companies are listed on the Brazilian exchange. Likewise as investors hesitate before the market’s ups and downs, business owners fear losing large chunks of their capital by going public. Many exceptions exist, of course, and they are the ones responsible for the capital market’s prosperity in the past decade. But fear, fueled by ignorance, still prevails in a wide range of situations.

The promise of a well–calibrated interest rate opens the door to a new era in equity investments. It may take time, but investors will need to start accepting more risk. And company owners, spurred by the demand for stocks, will become better inclined to go public. We’ve seen this story before, during memorable IPO booms like the one in 2007. Meanwhile, the extremely tangled European scenario has elevated Brazil to the post of safe haven for international investors in search of assets offering both growth and stability. So it may be that the time of truly consistent change in the Brazilian market has only just begun.