Even with the markets recent volatility, it is important to keep a long term focus and diversify your holdings outside the domestic issues. As we live longer in retirement, we need our money to last and do more. Yet, less than one third of retirement savings are in international funds. Even scarier is that only one in 10 investors has any sort of exposure to emerging markets. It is in these nations that portfolios can expect find the explosive growth needed to fund a long and comfortable retirement. The recent debt problems in Europe and substituent market drops have given investors a chance to add emerging markets to portfolio. One particular South American nation may just be the king of them all.
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BRIC with a Capital B
With its rich plethora of natural resources, a young increasingly wealthy demographic and conservative financial picture, Brazil has established itself as one of the planet's economic victors. After a turning point election in 2002, Brazil underwent a wave of pro-market reforms. This helped ensure the independence of its central bank, shrank its budget deficit and helped successfully develop the nation's vast natural resources.
As the rest of world's economies felt the weight of the credit crisis, Brazil faired much better. Gross Domestic Product for the nation contracted just 0.2% in 2009. This compares with a 2.4% contraction in the United States, a 4.1% reduction in the Euro zone, and 6.5% drop in Mexico. Brazil's Public debt hovers at just 43% of GDP, versus nearly 75% for the G20. Real wages have increased and unemployment has declined.
A Portfolio Must
The growth story in Brazil has the potential to be bigger than China's, and the recent market correction could be the time for investors to bounce. Brazil's Bovespa stock exchange is currently in negative territory for the year. The global sell-off has resulted in a loss of more than 8%. The broad-based iShares MSCI Brazil Index (NYSE:EWZ) is down about $17 from its 52-week high, and could be a great starting point for a portfolio addition. However, in wake of the nation's transformation, many of its individual companies trade as ADRs on U.S. exchanges. With wide choices, investors may be better suited in single equities.
A Few Picks
Feeding the nation's growing consumer base is job of Brazil Foods S.A. (NYSE:BRFS). Functioning similarly like Kraft (NYSE:KFT), the food producer has its hand in everything from frozen pizzas to poultry across South America. The BRFS exports its products to more than 100 countries. The company recently reported first-quarter sales of R$5.8 billion, an increase of 148% versus 2009 numbers.
While in the United States, there still is much debate over the health of the housing market, in Brazil, the growing middle class is buying homes. Gafisa (NYSE:GFA) is a home builder in the nation that operates across several different income levels. Shares of the company are trading the cheapest they have been in quite a while, with a forward P/E of 9 and PEG ratio of just 0.23.
The Brazilian steel industry is rebounding faster than developed markets because of the short-lived recession in nation. China's steady appetite for commodities and steel has also helped buoy the nations steel industry. Gerdau (NYSE:GGB) is one of the country's largest steel manufacturer and Vale (Nasdaq:VALE) is one of the world's largest iron ore miners. Together, these two stocks are great way to play the growth of the nation's commodity industry.
The Bottom Line
Investing internationally is important for long-term portfolio health. The recent market swings have opened up opportunities to add emerging market exposure and Brazil is a choice destination. Through the previous picks, as well as exchange traded funds like the Market Vectors Brazil Small-Cap ETF (NYSE:BRF), investors can tap into this growth. (Learn more about investing in Brazil, see: Investing In Brazil 101.)
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