The BRIC (Brazil, Russia, India, China) nations are fast becoming the one-stop shop for emerging markets investing. These countries are considered by analysts to be the cream of crop of the world's future economic and political leaders. However, while the growth stories in China, Russia and India seem awfully compelling, one nation of the four seems to be emerging as the probable leader.
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Taking a Trip to Rio
Brazil has broken the shackles of the recent global crisis and has emerged much stronger, both on financial strength and outlook. The World Bank is estimating that Brazil's economy will be the fifth largest in the world by 2016. Analysts at Credit Suisse are predicting that the nation's economy will be flat at 0.2% this year and will expand at a 5% rate in 2010. In addition, bond ratings agency Moody's (NYSE: MCO) upgraded Brazil's credit rating to investment grade status, after the nation built up its foreign reserves and increased its GDP growth rate for the first quarter by 1.9%.
More recently, several short-term catalysts for Brazil's long-term success have come to fruition. The South American leader has been selected to host the 2016 Summer Olympics and 2014 World Cup Soccer Championship. A combination of these two major international sporting events will spark an infrastructure spending spree. Brazil already has plans in place to invest $11 billion to host the 2016 Olympics. In a study by Brazil's Ministry of Sports, these two sporting events could bring in nearly $51 billion into Brazil's economy through 2027 and add approximately 120,000 jobs annually through 2016.
Aside from the short-term Olympic bump, Brazil offers emerging market investors something they can't get other places: a commodity-rich environment. The nation is a leader in iron ore, oil production and agriculture. This is helping fuel the Brazil's current account, and is providing a surplus. As the continued long-term usage of natural resources is trending upward, price pressures on these resources will increase. Brazil is in a unique place as the revenue generated from these resources will make the nation richer and further strengthen the nation's financial position within the global framework. (Brazil is just one of the countries in the BRIC countries, learn about investing in others in Go International With Foreign Index Funds.)
Buying the Growth
With only 31 ADRs currently listed on the NYSE, exchange-traded funds (ETFs) offer the best way to tap into the growth of Brazil and there are several to choose from. The iShares MSCI Brazil Index (NYSE: EWZ) is the largest, oldest and most liquid of the Brazil ETFs, making it the default option for many investors in the space. With just over $10 billion in assets, the ETF tracks 65 of the largest companies traded on the Bolsa de Valores de Sao Paulo, Brazil's major exchange. The fund is concentrated in natural resources with nearly 53% of its holdings in materials and energy stocks. The iShares fund charges 0.63% in expenses.
Investors wanting to experience the entrepreneurial economy of Brazil can invest in Van Eck Global's Brazil Small-Cap ETF (AMEX: BRF). This fund gives access to smaller companies that should benefit from an increasing consumer base and growing consumer spending. Nearly 66% of Brazil's GDP is derived from the services sector. The Market Vectors ETF's 58 holdings are firmly planted in Brazil's service economy, with a large weighting in the consumer discretionary sector. The fund has performed well in its short life; the inception date was May 2009, returning nearly 45% to shares holders.
Brazil is emerging as a leader of the future global economy. The current government has been aggressive in reforming financial policy and using its rich commodity resources to its advantage. Both short-term catalysts, such as the Olympic win, as well as long term trends make Brazil both an immediate play in addition to a core holding. The preceding ETFs as well as broader choices such as iShares S&P Latin America 40 Index (NYSE: ILF) make excellent choices in order to play its future growth.
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