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Published: October 9, 2009
The recent announcement to host the 2016
Olympics in Rio de Janeiro is a major coup for Brazil. Much like
the decision to host the 2008 Olympics in China, it is a signal
that the country is an economic powerhouse that's here to stay.
Not to take anything away from the announcement, but compare it
to Brazil's other recent accomplishments. Only seven years ago
the country was in an economic quagmire -- grappling with
hyperinflation, widespread unemployment and crushing debt.
Brazil has gone from the world's biggest emerging-market debtor
to a net foreign creditor. And as you might expect, this
stunning economic makeover coincided with a powerful multi-year
advance in the nation's Bovespa stock index.
There's no doubt Brazil's improved financial health has
bolstered its reputation as one of the world's most alluring
foreign markets. But the country isn't considered the gem of
Latin America for just its credit ratings.
To begin, Brazil has been blessed with a bountiful supply of
commodities. Larger in land area than the continental U.S., this
agricultural powerhouse produces 25% of the world's sugar supply
and 80% of its orange juice.
As you might expect in the lush rain forests of the Amazon, wood
pulp and lumber are also plentiful. Roaming the pastoral regions
are 170 million head of cattle -- easily the world's largest
commercial herd. Just a couple hundred miles off the coast, a
series of game-changing oil discoveries have
recently been made.
Estimates place these offshore reserves at roughly 80 billion
barrels (enough to dig up four million barrels per day for the
next 55 years). As these discoveries come online, Brazil will
soon be elevated into the pantheon of oil-producing states. The
country has broken free from dependence on foreign oil.
Nearly 80% of Brazil's electricity is generated by clean
hydroelectric power sources, while heavy investments in
sugar-based biofuels have weaned drivers off gasoline. In fact,
with 30,000 ethanol fueling stations and nothing but flex-fuel
vehicles on the roads, Brazil has earned the distinction of
being the "Saudi Arabia of ethanol."
Last year, Brazil exported nearly
$200 billion worth of goods
overseas. The agricultural harvest
alone netted $60 billion in trade
surplus. And 2009 is shaping up to
be even better.
Demand from China (which has just
overtaken the U.S. as Brazil's top
bilateral trading partner) has been
particularly rabid. Brazil locked up
an agreement to feed China 160,000
barrels of oil per day at market
prices.
But don't make the mistake of
assuming that future growth is
completely dependent on global
commodity demand.
Brazil has a young, well-educated
workforce and one of the highest
per-capita income rates in Latin
America. With annual GDP approaching
$2 trillion, it boasts the world's
ninth largest economy, but
agribusiness accounts for a
relatively small portion of that
output -- most of it comes from
diverse industrial activity and a
growing service sector.
During the past couple years;
Brazil's middle class has swelled to
more than 20 million people -- all
with money to spend on discretionary
products like dishwashers, DVD
players and mobile phones. Not
surprisingly, the number of credit
cards in use has more than doubled
since 2002.
There are several factors pointing
to even stronger domestic
consumption on the horizon. For
starters, interest rates have
plunged from above 30% to a record
low of 8.75%, making homes and other
big-ticket purchases much more
affordable.
All of this means there are plenty
of attractive investment
opportunities outside of Brazil's
well-known commodity plays. Global
mining conglomerate Vale (NYSE:
VALE) may capture most of the
headlines -- but it's more closely
tied to steel production in China
than anything happening on the
ground in Brazil.
Investors who do their homework will
find plenty of ADRs issued by
profitable, wide-moat leaders in the
retail, banking, utilities and
telecom sectors that will succeed in
the years ahead. But one of the
easiest ways to profit from Brazil's
success story is by investing in the
iShares MSCI Brazil ETF (NYSE:
EWZ). -- Nathan Slaughter
Editor
StreetAuthority Market Advisor P.S. I recommended EWZ to my Market
Advisor readers last December. Anyone who bought it is up
+86.7% today -- six times richer than if they had invested in
the S&P 500.
So how did I find this stock? I use a proprietary "profit
catalyst" system that tells me which stocks should rise, and
nothing more. I used this system to locate every single stock I
currently hold -- and it works: 47 out of 54 of them are up. To
find out how to be alerted when my system tells me about the
next "profit catalyst" stock,
go here now. |
