Brazil, the biggest country in South America has become the world’s biggest exporter of raw materials and is flourishing like none other.
China and India have stuttered to a halt and in America home and banking woes have taken up most of their attention. In the shadow of this Brazil has quietly boomed. In the opinion of this author the former Portuguese colony can now be viewed as the new China and I suggest that investors ignore this global economic powerhouse at their peril.
In 2008 bond rating agencies took notice of Brazil for the first time and upgraded the Brazilian sovereign debt to investment grade. Key stocks were pushed up as much as 5% in a single day by euphoric domestic investors.
But don’t be fooled into believing that the enthusiasm for Brazilian stocks is dwindling. As long as the world needs ore, energy and food the companies from Sao Paulo in the south to the Amazon basin in the north are going to keep up their heavy pace. Not even the global recession was able to halt Brazil’s growth.
For some, including myself, it is difficult to compare the Brazil from 2002, which needed a $40 billion rescue from the International Monetary Fund to escape an almost fatal crash of its currency to the Brazil of today, which has emerged as a sober and responsible member of the world economy. Even more impressive it is largely free of the over borrowing that has crippled Western banks and brokers.
The credit for Brazil’s turnaround is almost unanimously agreed by analysts to date to the presidential election of Luiz Inacio Lula da Silva. From the moment he took office in 2003 Brazilian stocks threw off a long term bear market and got their bull on. Silva and his partners leveraged a free market ethos to improve the legal system, tax code, industrial output and agricultural production, while at the same time managing to maintain a great relationship with the poor and middle class.
A sharp drop in inflation (which topped 100% in the 1990s) and economic growth at roughly 4.7% has encouraged growth in the middle class, who are eagerly buying mobile phones, refrigerators, travelling and going to university.
To sum up, Brazil is the new China without a totalitarian government, lack of natural resources or water and importantly doesn’t have a problem with Tibet. In this author’s opinion it is an emerging market with a real hope of sustainability.