Oil And Ethanol Drive Growth In Brazil

| May 16, 2008 | 0 Comments

This week WisdomTree launched a series of currency ETFs.  I can’t ever pass up the opportunity to research a new security.  Especially one focused on international currencies.  One of these ETFs is pegged to the Brazilian currency, also called the Real.

A few years ago Brazil rocketed to the top of investors’ focus list.  They received great notoriety by being part of a 4 country group nicknamed the “Bricks” or BRICs.  The BRIC countries are Brazil, Russia, India, and China.  Together, within the next 30 years, they’re expected to have a combined economy larger than the US and Japan.

With all of the excitement many investors are, again looking to Brazil. Personally, I think it’s a great place to make long term investments.  I have five reasons why I like Brazil as an investment, and I’ve identified a few ways to profit.

First, what I like about Brazil (then the investment ideas).

To start the list off, Warren Buffett loves Brazil.  What more do I need to say.  Warren’s quoted as saying “It’s quite likely that if you had told me 10 years ago that I would buy the Brazilian real, I would have thought you were crazy.”

Buffett’s a big believer in the continued decline of the US Dollar.  As a result, he is looking to make investments overseas.  He’s looking at companies generating earnings in foreign currencies.

Second, the Brazilian Real is taking off.  Over the last five years the currency has doubled in value against the US Dollar.  Investments in Brazil have seen a huge benefit from this valuation shift.  Of course, driving this valuation trend in the currency is a strong Brazilian economy.

Speaking of the Brazilian economy.

Brazil is well situated when it comes to global trade.  This is reason number three that I like the investment opportunities in Brazil.  Because the economy is closely tied to international exports I’d expect it to continue to expand for some time.  Their biggest exports are resource-related products including iron ore and oil.

Oil’s important but ethanol’s more important for Brazil right now.  The energy infrastructure of Brazil gives the country a leg-up globally.  A significant portion of their economy is based on ethanol as a fuel source. Brazil is able to make the stuff by the barrelful.  Ethanol in Brazil is made from sugar cane that grows easily in their geographic region.  This insulates the entire country from major economic shocks – like the rising price of oil.

The fifth and final reason I like Brazil is the recent boost in their credit rating.  S&P recently upgraded the entire country’s credit rating to “investment grade.”  The upgrade in rating was caused by – as S&P put it – easing debt burdens and improving growth prospects.

Why do we care?

Because the improved ratings open up the country to greater outside investment.  The increased investment will drive even more economic growth in the country.

Those are all great reasons to invest in Brazil, so how do we invest profitably?

There are almost 30 Brazilian companies traded as ADRs on the New York Stock Exchange.  Two of the largest are Vale (RIO) and Petrobras (PZE).  After looking at some of these investment options I decided to take the easy way out.

Yes, you know where I’m going with this.

There’s two ETFs that own a baskets of the largest Brazilian stocks.  I’d look into iShares MSCI Brazil Index (EWZ) and HOLDRs TeleBras (TBH).  Both offer great exposure to Brazilian companies that would otherwise be difficult to buy.  As always, perform your due diligence.  After some analysis, I’m sure you’ll like what you see!

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Category: Foreign Markets

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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