Sunday, June 25, 2006

Investing in Brazil

Brazil is a large South American country with a land area close to that of the United States and a population that is about 190 million people. The country has a GDP of around 600 billion dollars. The country is famous as a soccer super power. It has won the world cup five times and is looking for the sixth title in Germany.

The country is a growing power in agricultural commodity trading. Brazil's economy is growing around 3% rate year over year which is far slower than the Asian super powers China and India. Brazil and the South American economies have had cycles of boom and bust along with hyper inflation in recent times. However, things are improving for the better of late with the country. Brazil's currency, the real has stabilized and appreciated against the U.S dollar.

U.S is Brazil's largest trading partner accounting for about 20% of exports and imports. The size of the bilateral trade is about 40 billion dollars and is growing about 20-30% in 2006 compared to 2005.

Some of the funds that provide exposure to Brazil are:

EWZ - iShares Brazil Index Fund. EWZ is a good fund that is currently trading for a small discount to the NAV. The fund has large swings in value compared to the U.S Equity funds. The key companies in this ETF are materials, energy and financials.

BZF - Brazil Fund Inc. BZF is selling at a lesser discount to NAV compared to EWZ. The expense ratio charged by BZF is higher than EWZ.

Brazil has been one of the hot emerging markets in the past several years. One of the factors changing in the past year is the rise in U.S interest rates. Many people expect the short term interest rates to go up to 5.5% or 6%. Many people also expect the emerging markets to see a lot of growth in the 21st century. The fundamentals seem right in the emerging markets with some emerging markets growing faster than others. Brazil is a key emerging market and if the government can keep the previous era mistakes from repeating, the country and the stock market should do fine.

1 comment:

ForexCTAs said...

Brazils growing power in agricultural commodity trading is appreciable. I am really impressed by the prosperity.