Is Brazil's economy as strong as its soccer team? (Part 1 of 7)
Why is Brazil an attractive investment destination?
Brazil, the country of soccer
Brazil, “the country of soccer,” is the fifth largest country, with 2.83% of the world’s population. With a population of 202.72 million, Brazil is the biggest economy in Latin America and the seventh biggest in the world by nominal gross domestic product (IMF, 2013). There are several reasons why Brazil has been an attractive avenue among the investing community.
Seven key reasons to invest in Brazil
- Macroeconomic stability: Brazil is the second largest emerging market in the world, after China. Macroeconomic stability and inclusive growth have enabled Brazil to weather a global economic crisis.
- Secure investment framework: Brazil is one of the largest FDI recipients and preferred investment destinations in Latin America. Profits of multinational companies operating in the region have grown 5.5 times over eight to nine years.
- Huge domestic market: With 202 million inhabitants, Brazil is one of the largest consumer markets in the world. It ranks well in the world market for beauty and healthcare products, PCs, mobile phones, automobiles, TVs, and medical equipment.
- Competitive industrial sector: Steadily declining interest rates, lower electricity costs, and improved access to financing have strengthened the Brazilian industry.
- Energy powerhouse: Brazil has the world’s tenth largest petroleum reserves. It’s the largest exporter and second-largest producer of ethanol biofuel, and it has the largest river basin, which enables nearly 73% of Brazil’s energy needs to be met by hydroelectric power supply.
- Dynamic workforce: Brazil’s demographics support a vast majority of young and dynamic workers. The majority of the population falls within the economically active range and will continue to at least until 2020.
- Commodity rich: Brazil is among the top producers and exporters of sugar, ethanol biofuel, orange juice, coffee, and soybeans.
Considering the above qualities, several exchange-traded funds (or ETFs) have invested in Brazil. These include the iShares MSCI Brazil Capped (EWZ), which measures broad-based equity market performance in Brazil and has holdings in top companies like Itau Unibanco Holding S.A (ITUB), Ambev SA (ABEV), and Petroleo Brasileiro SA Petrobras (PBR), and the Global X Brazil Consumer ETF (BRAQ), which tracks the performance of the consumer sector in Brazil by investing in companies like Lojas Americanas.
Investing in Brazil requires caution
The next part of this series discusses some of the key things to keep in mind when deciding whether to invest in Brazil. Though Brazil has had one of the world’s fastest growth rates over the past decade, it’s also exposed to high inflation. This high inflation has led the central bank in Brazil to hike interest rates several times. Moreover, the country’s credit rating was cut by Standard & Poor’s to one notch above junk in March.