Around two months ago, Barron’s did a cover story titled “Brazil: Now is the time to invest”. It states the obvious, that the country’s once-sizzling economy has cooled, but claims that the long-term outlook is sunny and urges readers to look behind the regular headlines to see a different picture.
Brazil is known for its large amounts of arable land, water and rich natural resources. Its land and climate support two annual crops—sugar and soy. Given Brazil’s crop dominance of sugar, it is also one of the world’s most significant producers of Ethanol. Some 15 per cent of all energy in Brazil comes directly from sugarcane, while all motor vehicles in that country run on ethanol bio-fuel. Sugar-based ethanol is more efficient to produce than the corn-based fuel made in the US, and is designated by US-based Environmental Protection Agency (EPA) as an advanced bio-fuel due to its over 60 per cent reduction of total life cycle greenhouse gas emissions. As the world embraces a lower carbon footprint, the demand for ethanol is increasing, and Brazil is one of the largest exporters of this fuel to the US.
Besides being rich in land, resources, labour and a growing middle class, Brazil is also spending on infrastructure in preparation of the FIFA World Cup (2014) and the Olympics (2016). To add to it is the trade advantage. Last year, Brazil posted its highest trade surplus in four years. The Latin American country is expecting an increase in 2012, looking toward another record year.
It has overtaken Britain to become the world’s sixth largest economy. Foreign direct investment in Brazil is surging. S&P recently upgraded the country’s credit rating to “investment grade” on the back of “easing debt burdens and improving growth prospects”.
Incidentally, Warren Buffet too likes Brazil. He has been 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.”
Investing in Brazil is no longer crazy. If you want to go long on Brazil, this well-diversified offering could be the most convenient vehicle.
This article was originally published on February 15, 2012.
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