The recent announcement that Rio De Janeiro will host the 2016 Summer Olympics certainly put the spotlight on Brazil, but for investors, that light has been shining brightly for quite a while now. The iShares MSCI Brazil Index (NYSE:EWZ), the primary ETF tracking Brazilian equities, is up about 40% in the past three months while the S&P 500 is up "just" 19%. Brazil is the tenth largest economy in the world, home to some of the richest natural resources reserves, including significant crude oil holdings, and in addition to the 2016 Olympics, Brazil will also play host to 2014 FIFA World Cup.

IN PICTURES: Eight Ways To Survive A Market Downturn

Brazil has helped lift the fortunes of other South American nations as well. The iShares MSCI Chile Investable Market Index ETF (NYSE:ECH) is up 60% year-to-date and that means there is more to investing in South American beyond Brazil.

Much of the investment thesis regarding stock-picking in this region involves the typical emerging market plays, namely commodities, infrastructure and cyclical stocks, but all those companies need financing and that makes looking at South American bank stocks especially compelling at this point. Let's take a look a few here.

Company Forward P/E Ratio Price/Book Ratio
Banco Santander (NYSE:STD) 10.7 1.4
Banco Bradesco (NYSE:BBD) 14.5 3
Banco Santander-Chile (NYSE:SAN) 14.7 3.7

A Giant Spin-Off
Banco Santander is actually Spain's largest bank, but the bank is spinning off its Brazilian unit this week in a $7.4 billion IPO - one of the biggest new offerings of 2009. Not surprisingly, the offering has been met with robust demand and Santander's Brazilian unit could wind up being valued at levels similar to established European banking giants such as Societe Generale and Deutsche Bank.

You don't need to buy the IPO to get a piece of Santander's Brazilian exposure. Santander is selling just over 16% of the Brazilian unit and it is counting on the business to deliver nearly $5 billion in profits by 2011. Santander will open 600 branches in Brazil by 2013, showing its commitment to the market. (For more, check out The Rise Of The Modern Investment Bank)

Already A Big Brazilian Player

Banco Bradesco is the second-largest bank in Brazil and the bank is expanding its reach into the world of private equity investing. The ADRs are up 50% in the past three months and the bank is looking to seize on demand for Brazilian equities by making its shares more obtainable for international investors.

It wouldn't be surprising to see Banco Bradesco go shopping, though it recently denied it was interested in acquiring a Brazilian insurance firm. The shares are marketable currency at this point, up 76% in the past 52 weeks. Good luck finding a similar performance with a U.S. bank. (For related reading, check out Go International With Foreign Index Funds)

Don't Sleep On Chile
Banco Santander-Chile (NYSE:SAN) is the publicly traded Chilean operation of Santander. The bank is Chile's largest lender and also has a 3.5% slice of the Chilean insurance market. For what it's worth, Santander-Chile's trading volume is light at around 198,000 shares for the last three months and Goldman Sachs recently said it favors Brazilian and Peruvian banks when it comes to Latin American financials.

Who are we to argue with Goldman, but it's hard to ignore that Chilean stocks are starting to gain investors' favor. Santander-Chile is up 60% year-to-date. The stock trades at 13.7 times forward earnings and yields 2.4%, which isn't great, but it is better than the current dividend yield on the S&P 500 and the payout is decent at $1.30 per ADR annually.

Bottom Line: Bank On South America
Banks all over the globe have been dealing with myriad problems for nearly two years and South American banks are no angels. Yes, there are bad loans and credit losses to be dealt with, but as we said earlier, the balance sheets of the trio mentioned here sparkle when compared with their European and U.S. counterparts. It's hard to go wrong with Santander's international exposure and it might be a better way to go than the Brazilian IPO, at least in the short term. Bradesco's sheer size should serve it well and Santander-Chile could make for an interesting "conservative/speculative" play.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    Top 4 Asia-Pacific ETFs

    Learn about four of the best-performing exchange-traded funds, or ETFs, that offer investors exposure to the Asia-Pacific region.
  2. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  3. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  4. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  5. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  6. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  7. Investing Basics

    6 Reasons Hedge Funds Underperform

    Understand the hedge fund industry and why it has grown exponentially since 1995. Learn about the top six reasons why the industry underperforms.
  8. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  9. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  10. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!