The U.S. dollar had had a great year. In 2015 so far, the dollar has had an overall gain of 49.73 percent. In September 2015, the dollar gained 9.75 percent, and that has some investors like James Dondero, the president of Highland Capital Management, wondering what will happen next. According to Mr. Dondero one of the most important dollar gains was against the Brazilian real. The real is at the lowest point it has been in 13 years. The exchange is 3.98 r to 1 dollar, and that means companies that buy goods from Brazil with dollars have a huge advantage at the moment.
James Dondero said the Central Bank is offering about $3 billion in dollar swap contracts to stop the devaluation. Nothing, including the Feds announcement that they would keep interest rates between 0 and 0.25 percent, has helped the foreign exchange in Brazil. This year has been a tough one for Brazil, and the recent downgrade of their credit rating by S&P hasn’t helped foreign investors recoup some of their losses this year. In fact, it made matter worse.
The other issue that has investors worried is the 2016 Brazilian budget deficit. Highland Capital thinks the pending budget will just complicate investments in Brazil. The government will have to raise taxes, cut needed programs and put a lot of people out of work and that means the current recession could get worse before it gets better. Dondero thinks investors that have money in Brazil won’t see a return for 18 months, and that’s if the government can get its act together. The political situation in Brazil will continue, according to the economists that are watching the people of Brazil vs. President Rousseff battle intensify.
But Brazil is not the only trading partner that is experiencing economic and investment issues. China is a major trading partner of the United States, and right now the dollar is making some Chinese products more attractive. Investors that have interests in those companies will do well, but China limits the number of foreign investors that can participate in joint ventures. Most of those investors have been in the Chinese market for some time.
India has some great investment opportunities, according to Mr. Dondero. The only downside to investing in India is identifying products that have mass appeal in the U.S. market and other markets. Most products made in India appeal to the domestic market, and although that could mean nice profits, the real profits come when companies and products have a worldwide appeal. Technology in India is one bright spot, and oil is another.
The trick, as Dondero points out, is to forecast what is going to happen next in these foreign markets. That takes an enormous amount of research and a talent for picking products and services that have a long-term appeal. Highland Capital Management has been doing that for years for their clients. Dondero and Highland have more than $26 billion assets under management and that number continues to grow even when the world is facing another recession.