Investing in Brazilian Stocks

There is an old saying in Brazil that goes: “Brazil is the Country of the Future and it Always Will Be”.

Well, it seems the “future” has finally arrived for Brazil. Brazilian GDP is expected to grow about 7,5% in 2010 and 5% in 2011. Over the last decade, the growth has also been significant.
While the economy did shrink in 2009 affected by the international crisis, this drop was only 0,2% and the recover in 2010 has been quite strong.

Why should you believe the economy will keep growing in the future? I will divide the answer in two parts: Long-Term and Mid-Term drivers.

Long-Term drivers

    * Stable Political and Economic Environment

Brazil’s political system is a democracy with three well defined powers: Executive, Legislative and Judiciary.
The economy has reliable statistics and follow “western standards” for accounting and the press is free.
This provides investors a clear picture of what is happening in the country and in the economy. That is specially important when you compare Brazil to other emerging markets, for example, the other

three BRIC: China, India and Russia.

    * Diversified Economy

Brazilian economy is very diversified producing from agricultural commodities to cars and aircrafts.
While commodities still represent a considerable part of the economy, industry and services has grown very quickly in recent years.

    * Abundant Natural Resources

With an area of 3,287,612 square miles, Brazil is the 5th largest country in the would.
Allied with the geographic location, this give a huge potential for agriculture. Brazil also has big reserves iron ore, oil and one of the largest biodiversity in the world.

    * Growing middle-class

Over the last two decades, the growing economy and a series of wealth distribution policies have helped improving the quality of life for a lot of Brazilians.
Today, more than 80% of the population is considered middle-class and that creates a powerfull consumption environment, which is always good for businesses.

Mid-Term drivers

The economy growth described so far should be reason enough to invest in Brazil. But wait, there is more!
Over the next few years, three events will cause Brazil to become highlight in the news and a shine in your portfolio

    * World Cup – 2014

While everybody already knows Brazil is going to win the next world cup playing at home (yeah, right! I wish it was that easy.), not everybody realizes the impact this is having and will still have

in Brazil’s economy. The infrastructure investment in public transportation and tourism will cause a big impact in the 12 cities that will host the matches.

This event is particularly important for industries such as construction, airlines and lodging.

    * Olympics – Rio 2016

Similarly to the word-cup, the summer Olympics 2016 in Rio will cause a lot of infra-structure and tourism investment. That even will be more concentrated in Rio but it will be very important to

keep the momentum on investment in Brazil.

    * Pre-salt (Pré-sal)

In 2008, the Brazilian state-controlled oil explorer and producer, Petrobras, anounced the first discovery of oil in the pre-salt layer. The pre-salt is exactly what the name implies: it sits below

the salt layer offshore.
The new discoveries have more than doubled the Brazilian reserves so far and specialists say there is much more to be found.

While there was a lot of debate on the impact of the pre-salt for Petrobras due to political interferences and to the world’s largest share offer ever at US$ 67 Billion, the impact for the country

will definitely be positive in the long run:

          o First of all, the government owns a big chunk of Petrobras and that will mean more money coming for corruption (Ooops, I mean public investment) in the future.
          o Brazil is already self-sufficient in oil and when the added production starts to flow, a good part of that will be exported bringing dollars into the country.
          o The government has already created rules that define Petrobras as the only operator of the pre-salt. It has also created rules that require Petrobras to contract most of the services

needed for exploring and producing from the pre-salt from Brazilian companies. That will cause a huge demand for construction, naval and engineering industries.

In summary, while there are risks to any investment, Brazilian growth perspective should minimize these risks for long-term investors. The factors described here like growing middle-class, abundant

natural resources and the stable political end economic environment provide a perfect destination for your emerging market investments.