Brazil's Risk Factors: Crime and Corruption

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In Parts 1, 2 and 3 of this series, I expressed my bullish view on Brazil, led by a rich bounty of natural resources and a burgeoning middle-class. To avoid accusations of pushing Pollyanna ideals, in this final installment, I will detail the still deep-seated problems in Brazilian society and markets.

The plague of crime and corruption is the biggest bearish argument against the sustainable growth of Brazil's economy and bigger market gains. It is a corrosive and threatening crisis because as we all learned in high school, the foundation of any prosperous and civil society or market takes root in the rule of law.

Investors must have an absolute and unconditional belief that the system is untainted (higher confidence equals higher PE multiples). Lacking an honest system of checks and balances, investment and commerce cannot exist. ...