As both populations and economies continue to expand in the emerging world, improving infrastructure will remain a high priority. Overall, analysts expect trillions to be spent by both developed and developing market nations over the next decades, in order to do so. Brazil offers an interesting opportunity to play this infrastructure spending. Hosting both the 2014 World Cup and the 2016 Olympics, the nation has gone on a building binge. Upgrading its airports, roads, electrical grid and public facilities, the nation continues to pump major dollar amounts into the preparations. Despite this, there is still much work to be done and investors have plenty of prospects to profit.
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A Huge Amount of Spending
As Brazil prepares for the two major world events, the nation is throwing major amounts at improving its economic backbone. Last year, South Africa spent about $4 billion on preparations for the World Cup. Brazil's official estimates already stand near $13 billion and include a variety of transportation projects, stadium construction and airport upgrades. However, officials in Rio de Janeiro estimate that as much as $90 billion in infrastructure investments will occur over the next three years and most private sector analysts expect the total bill for the two events to be closer to $60 billion.
The sporting events are just the beginning to Brazil's infrastructure build-out. Last year, outgoing president Luiz Inacio Lula da Silva, launched a $900 billion infrastructure plan which focused on improving transportation, electrical supply and the nation's ports. Similarly, current President Dilma Rousseff, has also pledged to improve infrastructure via massive public works plans.
Brazil is also seeing increased spending from an outside source: China. Beijing has boosted its investment in the country as a way to help move the natural resources it craves, quicker and easier through Brazil. China's biggest electrical utility paid $1.7 billion for seven Brazilian electricity transmission companies and is the major backer of an ambitious $19 billion "bullet" train line, between Sao Paulo and Rio de Janeiro.
The nation will certainly need those dollar amounts. France, which is one-thirteenth the size of Brazil, has a larger railroad network. Despite its huge size, Brazil only has around one million miles of roadways, but only 12% of them are paved. Overall, a survey conducted at the 2009/2010 World Economic Forum in Geneva, ranked Brazilian infrastructure at a 3.4 for its quality, which was below the world average of 4.1. The major take-away from the report was that "The quality of Brazil's infrastructure ranks among the worst in the world."
For investors, the long term opportunities for Brazil are great. Funds like iShares MSCI Brazil (NYSE:EWZ) have become popular investments for those looking to cash in on that potential. While these broad-based funds will certainly see their prices rise as improvements to infrastructure take hold, investors looking to play the build-out directly, do have some choices.
For those looking for a one-stop-shop, the EGShares Brazil Infrastructure (NASDAQ:BRXX) ETF follows 30 different Brazilian firms across a variety of sectors, including metals and mining, utilities, and transportation. Top holdings include Ultrapar Holdings (NYSE:UGP) and telecom Vivo (NYSE:VIV). The fund is currently trading near its 52-week low and 0.85% in expenses.
Steel forms the backbone of modern infrastructure and producers in Brazil are poised to benefit from the build-out. Both Companhia Siderurgica Nacional (NYSE:SID) and Gerdau S.A. (NYSE:GGB), which make a variety of girders, rebar and other structural steel products, are choices in the sector. In addition, mega iron ore producer Vale (NASDAQ:VALE) offers a compelling buy.
Finally, improvements to the electrical grid are key. The dual utilities of CPFL Energia (NYSE:CPL) and CEMIG (NYSE:CIG) have been expanding their grid networks and offer investors juicy dividend yields of 5.7% and 7.3%, respectively.
The Bottom Line
With both the World Cup and the Olympics in Brazil's not so distant future, the nation is undergoing a major infrastructure revival. The country plans to spend billions on improvements to its electrical grid, transportation network and port systems. For investors, this spending represents a great opportunity and the previous stocks along with Centrais Electricas Brasileiras (NYSE:EBR) make ideal picks. (For additional reading, take a look at Investing In Brazil 101.)
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