As developed global markets struggle to extract themselves from the ‘great recession’, investor attention is often directed to other parts of the global economy in an effort to find other opportunities. A good amount of that focus has landed squarely on the shoulders of Brazil, and, to a lesser extent, Chile, with good reason. There is much to like about both these economies. In fact each puts some developed nations to shame when it comes to their robust fiscal, economic regulations and well managed growth over the last few years. In this multi-part series we will take a look at both separately to see what makes them an appealing investment opportunity for those that are willing to take on some risk.
Brazil has the largest economy in South America and ranks as the world’s fifth most populous country and tenth largest economy. It is uniquely situated in that it shares borders with every country in South America with the exception of Chile and Ecuador. The country has rebounded strongly since the economic problems of 2007, driven by domestic demand as rising incomes create a growing, increasingly consumer-oriented middle class . Brazil is also seeing greater freedom in its export policy, which has led to strong ties with China. In fact, China surpassed the US in 2009 as the largest trading partner. While many assume that trade must be one of the biggest drivers of the economy, it actually only represents a small part of Brazil’s GDP and these exports are further diversified geographically with a low dependence on external financing and reserve accumulation. Incredibly, this has led to Brazil’s international reserves being able to cover the country’s sovereign and private external debt obligations.
With a growing consumer market that has been supported by government aid, there has been a significant upswing in merger and acquisition activity. Sectors such as finance, consumer retail and agribusiness are seeing more takeovers, corporate restructuring and ventures. These pressures are looking likely to result in an increase in rates to a predicted 9% no later than April, as there is some concern that inflation could be a significant risk. Banks are also getting in on the action, greatly expanding their credit positions while opening hundreds of agencies across the country in 2010.
With a change in Presidency this year not looking to upset the apple cart in terms of economic direction, good things seem to occupy the horizon for a country that will have a chance to show off its growth, development and place in the global economic order in Rio at the 2012 Olympics. There is also a wave of competent business expertise flowing through the corporate landscape in Brazil. One example is Eike Batista, predicted to be the worlds richest man in a couple of years due to the enormous wealth he has built in Brazil and beyond. For a very engaging interview with Batista, watch the Charlie Rose Show online and find the video in the archives on 02/08/2010.
The simplest way to invest and get exposure to the Brazilian markets beyond individual stock selection is through the ETF’s iShares MSCI Brazil Index (EWZ), Market Vectors Brazil Small-Cap (BRF) and a currency option is Wisdom Tree Brazilian Real (BZF).
Click on the above links for more details on these funds, and check back for another post that will profile them in more detail. Part 2 of this series will take a look at Chile and why it may follow in Brazil’s success as a strong emerging market.