Why Investors Are Going Wild For Brazil

[image url="http://static.businessinsider.com/image/4ae99e900000000000ef5eea/image.jpg" link="http://www.businessinsider.com.au/10-reasons-investors-are-wild-about-brazil-2009-10/its-leading-latin-america-1" caption="" source="" alt="brazil" align="left" size="xlarge" nocrop="true" clear="true"]
Latin America’s leading country escaped the financial crisis relatively unscathed and is reporting economic figures America can only dream of.

Brazil, which investors can play using the iShares MSCI Brazil (EWZ), literally feeds the world with its products and has far fewer crisis scenarios to worry about than countries such as the U.S., China, and Japan.

While the stock market is on fire and the timing may not be perfect, the story of Brazil is a multi-decade theme still in its infancy.

This country is just as important to the world’s future as China.

Now see what all the fuss is about  –>

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permalink=”its-leading-latin-america-1″
title=”It’s Leading Latin America”
content=”As South America’s largest economy, Brazil is leading the continent out of the global recession.

GDP growth this year should be flat to slightly positive, and in 2010 the country is expected to expand 3.5% according to the International Monetary Fund (IMF).

For a two-trillion dollar economy, that’s nothing to sneer at.

Especially since Brazil is an export-oriented economy with a healthy mix of both commodity production and manufacturing.

While issues such as education, the legal system, and infrastructure still need improvement according to the World Economic Forum, Brazil is moving in the right direction. It jumped an impressive eight slots in 2008 alone to rank as the 56th most competitive economy in the world.”
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permalink=”plenty-of-oil-natural-gas-other-commodities-2″
title=”Plenty Of Oil, Natural Gas, Other Commodities”
content=”Brazil is rich in commodities the world needs right now.

It’s one of the most important sources of iron ore, being home to the world’s largest producer Vale.

Without Brazilian ore, the rapid development of countries like China would not be possible.

In terms of oil, the country has enough in the ground to be both self-sufficient and even an oil exporter.

While much of it lies off the coast and buried under layers of salt, estimated reserves could total 60 – 100 billion barrels of oil and natural gas equivalent.

For agriculture, the country’s excellent climate and fertile land gives it a huge cost advantage versus most nations in the world. Brazil will increasingly become the bread basket for the world, which is particularly powerful as millions rise out of poverty in countries like China and move to higher quality diets.”
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[slide
permalink=”payrolls-keep-growing-3″
title=”Payrolls Keep Growing”
content=”While much of the world debates whether or not smaller job losses indicate a recovery, Brazil been been creating job growth for eight months already.

In September, employment grew by the most this year, adding a quarter of a million jobs.

Encouragingly, both the industrial and services sectors are growing in unison.”
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permalink=”theres-a-trade-surplus-4″
title=”There’s A Trade Surplus”
content=”Even with its strong currency, Brazil exports more than it imports.

As of mid-October, Brazil’s year-to-date trade surplus totaled $22.5 billion, up from $20.5 billion in the same period of 2008. According to Dow Jones, Brazil posted a trade surplus of $24.7 billion in 2008. Analysts expect the surplus to grow in 2009.

Biggest exports include transport equipment, iron ore, soybeans, shoes, coffee, and cars to the U.S., China, Argentina, Netherlands, and Germany, according to the CIA World Factbook. Oil could soon be added to the export list if its recently discovered reserve are exploited as expected.”
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permalink=”more-banking-needed-5″
title=”More Banking Needed”
content=”Brazil’s relatively underdeveloped banking sector is another area ready for investment.

As Der Spiegel reports, there’s a big opportunity to expand savings and lending in the country.

Analysts say even an greater upside is still to come. According to Citigroup figures, the ratio of loans to GDP in Brazil — a key indicator of banking-sector maturity — now stands at just 40 per cent, about half that of regional rival Chile. And Brazil’s ratio of retail deposits to GDP is comparable to that of Colombia, which is both smaller and poorer. Santander Chairman Emilio Botin thus clearly has a big opportunity to bring more of Brazil’s 190 million citizens into the banking sector.

The demand is already being demonstrated. For example, Banco Santander Brasil, a subsidiary of Spain’s Banco Santander, raised $8 billion in an IPO this year and plans to expand its in-country presence rapidly.

And, as Paul Harper notes on Seeking Alpha, ‘Brazil’s nascent credit sector has benefited from a wave of bank consolidation over the last 18 months, the strength of the real versus the US dollar and one of the strongest economies to exit the financial crisis.'”
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permalink=”the-big-boys-are-jumping-in-6″
title=”The Big Boys Are Jumping In”
content=”As proof investors like Brazil, Goldman Sachs (GS), JPMorgan Chase (JPM), and others, like options traders, have come out in favour of investment in Brazil as part of their overall bullish-ness on emerging markets.

Goldman says the Brazilian stock market could jump 30% by 2010 and says valuations and risks in Brazil remain relatively low in comparison to other markets:

GS via Seeking Alpha: Forward valuations suggest it is hazardous to be underweight Brazil. Brazilian sovereign risk and interest rates are at or near record lows, while prospects for sustainable economic growth are possibly better than at any period in the last few decades.

Brazil is part of Goldman’s overall bullish BRIC strategy

GS via Pragmatic Capitalist: We favour exposure to Brazil, Russia, India and China (BRICs) over developed markets given the significantly higher GDP growth outlook. We believe investors should use this basket to identify stocks with high exposure to emerging market growth. Long/short investors should consider buying this basket against the S&P 500 to gain exposure to higher growth in the BRICs countries versus slower growth in developed regions.

JPMorgan takes a similar position on Brazil and emerging markets generally.

JPM via Seeking Alpha: The new EM trade: Emerging economies are exiting the crisis relatively unscathed and with improved economic, financial, and fiscal positions versus developed economies. This means medium-term out-performance of their equities, currencies, and credit. Near term, it means their local debt will likely under-perform, except for the highest-yielding markets, which should benefit from the search for yield. With much of the EM growth impetus emanating from commodity-hungry China, this should be bullish for commodities.”
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[slide
permalink=”stocks-are-soaring-7″
title=”Stocks Are Soaring”
content=”The Brazilian stock market, the Bovespa, is the largest in Latin America.

It notably bottomed in October 2008, far earlier than most markets.

Since then it has doubled, catching the attention of global investors.

While past performance doesn’t necessarily have any bearing on the future, human nature is such that investors are chasing this performance.”
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permalink=”the-real-is-blowing-away-the-dollar-8″
title=”The Real Is Blowing Away The Dollar”
content=”Brazil’s currency, the real, has blown away the dollar this year.

For investors in real assets, no pun intended, this has substantially enhanced dollar-based returns this year.

While the currency may have a lot further to rally against the U.S. dollar, just don’t forget that during the recent credit crisis the real was slammed just like many other currencies against the dollar.”
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permalink=”world-cup-2014-olympics-2016-9″
title=”World Cup 2014! Olympics 2016!”
content=”After a $14.4 billion bid, Rio beat out Tokyo, Madrid and Chicago to win the 2016 Olympics, becoming the first Latin American country to host the games and sending Brazil into pandemonium.

Hosting the event helps solidify Brazil’s new-found place among the global elite and will give Rio an infrastructure and tourism boost.

And, if winning the Olympics wasn’t good enough, Brazil already nabbed the right to host the 2014 World Cup. Brazil has won five times, but this will be the first time the the global showpiece finals have returned to the land of jogo bonito since 1950, according to FIFA.”
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permalink=”an-excuse-to-visit-10″
title=”An Excuse To Visit”
content=”But we know why people really love investing in Brazil: they want to visit.

Between Carnival, soccer, samba, and modestly tanned and toned beach-goers, Brazil’s legendary beauty and party culture means a business trip to Rio is nothing like one to, say, Omaha.”
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permalink=”but-many-dreams-could-be-shattered-in-the-process-11″
title=”But… Many Dreams Could Be Shattered In The Process”
content=”There are risks of course.

Recently, there’s worry the Brazilian stock market is overvalued, much like in the U.S..

Some investors are also mindful of a new 2% tax on foreign portfolio investments into fixed-income and equities accounts.

Others aren’t too concerned about the tax. Standard Chartered Bank, in a brief research note, the tax move is ‘unlikely to have much effect beyond the knee-jerk reaction,’ according to WSJ.

More generally, investors should be mindful of the fact that Brazil’s progress is only nine years removed from near economic collapse. Back in 2002 it had to borrow $30 billion from the International Monetary Fund to avoid default on its sovereign debt.

Brazil also remains a country of stark contrast between rich and poor. 30 per cent of Brazilians — or 57 million — live in poverty, an enherantly unstable economic, political, and social reality. This could be one reason why violence has long been problematic in the country. Brazil has one of the world’s highest murder rates.

In the end, Brazil will likely shatter the dreams of some investors along its jagged path to prosperity. So be careful and do your homework.”
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permalink=”see-also-12″
title=”See Also”
content=”Think we’re full of it on Brazil? Here are 11 ways to invest in gold.
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