ever pass up the opportunity to research a new security.
Especially one focused on international currencies. One of these
ETFs is pegged to the Brazilian currency, also called the Real.
A few years ago Brazil rocketed to the top of investors' focus
list. They received great notoriety by being part of a 4 country
group nicknamed the "Bricks" or BRICs. The BRIC countries are
Brazil, Russia, India, and China. Together, within the next 30
years, they're expected to have a combined economy larger than the US
and Japan.
With all of the excitement many investors are, again looking to
Brazil. Personally, I think it's a great place to make long term
investments. I have five reasons why I like Brazil as an
investment, and I've identified a few ways to profit. First,
what I like about Brazil (then the investment ideas).
To start the list off, Warren Buffett loves Brazil. What more do
I need to say. Warren's quoted as saying "It's quite likely that
if you had told me 10 years ago that I would buy the Brazilian real, I
would have thought you were crazy."
Buffett's a big believer in the continued decline of the US
Dollar. As a result, he is looking to make investments
overseas. He's looking at companies generating earnings in
foreign currencies.
Second, the Brazilian Real is taking off. Over the last five
years the currency has doubled in value against the US Dollar.
Investments in Brazil have seen a huge benefit from this valuation
shift. Of course, driving this valuation trend in the currency
is a strong Brazilian economy.
Speaking of the Brazilian economy.
Brazil is well situated when it comes to global trade. This is
reason number three that I like the investment opportunities in
Brazil. Because the economy is closely tied to international
exports I'd expect it to continue to expand for some time. Their
biggest exports are resource-related products including iron ore and
oil.
Oil's important but ethanol's more important for Brazil right
now. The energy infrastructure of Brazil gives the country a leg-
up globally. A significant portion of their economy is based on
ethanol as a fuel source. Brazil is able to make the stuff by the
barrelful. Ethanol in Brazil is made from sugar cane that grows
easily in their geographic region. This insulates the entire
country from major economic shocks - like the rising price of oil.
The fifth and final reason I like Brazil is the recent boost in their
credit rating. S&P recently upgraded the entire country's
credit rating to "investment grade." The upgrade in rating was
caused by - as S&P put it - easing debt burdens and improving
growth prospects.
Why do we care?
Because the improved ratings open up the country to greater outside
investment. The increased investment will drive even more
economic growth in the country.
Those are all great reasons to invest in Brazil, so how do we invest
profitably?
There are almost 30 Brazilian companies traded as ADRs on the New York
Stock Exchange. Two of the largest are Vale (RIO) and Petrobras
(PZE). After looking at some of these investment options I
decided to take the easy way out.
Yes, you know where I'm going with this.
There's two ETFs that own a baskets of the largest Brazilian
stocks. I'd look into iShares MSCI Brazil Index (EWZ) and HOLDRs
TeleBras (TBH). Both offer great exposure to Brazilian companies
that would otherwise be difficult to buy. As always, perform
your due diligence. After some analysis, I'm sure you'll like
what you see!
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