The current financial strength of Brazil and its booming numbers of wealthy individuals have been well documented, but investors need to be aware that the country’s future growth may not be entirely assured, warns SYZ Asset Management.

As anyone with an eye on macroeconomics will know, Brazil’s prospects stand in stark contrast to the parlous state of many nations’ finances. Brazil’s economy is expanding rapidly, producing a booming wealthy population that is enticing many private banks and wealth managers to expand in this fertile country.

The positive trends in the Brazilian labor markets have been significant drivers of the growth in the wealth of the nation. SYZ notes that the country’s unemployment rate stands at an all time low of 5.3 per cent and that income inequality has shrunk by almost 9 per cent since 2001.

Furthermore, the middle class has almost doubled to 50 per cent of the population, a trend which has ramped up domestic demand and created an enormous amount of new wealth in Brazil, says the firm. 

However, while acknowledging Brazil’s growing economic strength and continuously expanding domestic demand, SYZ warns that these factors have created worrying inflationary pressures. Core inflation in the country reached an annual rate of 5.7 per cent in March 2011, the firm notes.

This, coupled with the failure of interest rate hikes and currency flotation in reining in inflation, and a dangerous contraction in the industrial production index by 12 per cent over 5 months, have created uncertainty over the country’s future growth prospects.

However, for private banks and wealth managers an inflationary environment may actually provide somewhat of a driver of demand for their services as clients search for ways to protect the real value of their wealth. So, for now at least, Brazil is a top destination for firms in an expansionary mood.

The country is of course home to some very wealthy individuals indeed: according to recent figures from Wealth-X, there are at least 4,700 ultra high net worth individuals in Brazil, holding some $890 billion in assets, and who account for a third of the UHNW individuals in Latin America.

The Spanish banking giant Santander is certainly determined not to miss out on Brazil’s growth story and is reportedly looking to grow its private banker headcount in the country by as much as 20 per cent.

“It’s [the recruitment plan] not just because Brazilians are getting richer; it’s also about the dynamics in the market, with more IPOs, more mergers and acquisitions, new businesses in general,” Maria Eugenia Lopez, who runs Santander Brazil’s private banking unit, told Bloomberg earlier this year.

Many other firms are flocking to Brazil too - Barclays, JP Morgan and UBS have all ramped up their presence in the country this year.