The possible benefits of holding Brazilian short-term instruments or Brazilian reais may have been overlooked by treasurers as a result of the perceived contagion risk at the macro level over the past eight months.

During the bout of concern over Europe's debt problems in mid-September, the real weakened to U.S. $1.95 from U.S. $1.54 in late July. The latest reading at U.S. $1.72 shows considerable potential for the real to appreciate against the greenback over coming months. In addition to the impetus favoring all risky assets (the tide lifting all boats), the Brazilian real has the wind in its sails as the result of other fundamentals.

First, Brazil's president, Dilma Rousseff, is demonstrating steady resolve to continue the policies and priorities of her successful predecessor, Lula da Silva. These efforts continue to attract institutional funds, particularly to Brazilian equities and infrastructure-related bonds, which also benefited as of December from the elimination of the tax on financial transactions (IOF tax) due from foreigners.