Brazil Looks Like A Buying Opportunity Again!
BEING STREET SMART
by Sy Harding
Brazil Looks Like A Buying
Opportunity Again!
January 13, 2012.
Brazil continues to impress as a country and economy, due in
no small way to its government’s multi-year efforts and determination to make it
an important global presence.
Brazil is the fifth largest country in the world by
geographical area and population (190 million), and now has the sixth largest
economy, having surpassed the United Kingdom last year.
It’s long been known for its dirt-poor city slums, which are
appalling. But its booming economy of recent years has increased the purchasing
power of its population and moved an estimated 20 million out of poverty, with
the majority of the population now in the middle class for the first time ever.
The increasing purchasing power of its population, and
pent-up demand for goods, is an important factor in its solid economy and
relative protection from the woes of the world.
The country is blessed with an abundance of natural
resources, including huge and growing reserves of oil and gas, is the world’s
largest producer of sugarcane, coffee, and tropical fruit, and has the largest
commercial cattle herd.
Yet exports account for only 14% of its economy, which
should leave it less affected by threatening economic slowdowns in Asia and
Europe.
Manufacturing, including automobiles, steel, petrochemicals,
computers, aircraft and consumer durables, account for 31% of GDP. Agriculture,
construction, and services, including healthcare, banking, insurance, retailing,
etc., account for the rest.
Over the years Brazil’s government has undertaken several
timely measures that are probably the envy of many global central banks. Among
them, the Brazilian government strived to pay off debts before the credit crisis
hit.
Although its stock market plunged with the rest of the world
in 2008, Brazil’s economy experienced solid performance during the global
financial crisis and a strong and early recovery. The result was that in 2010,
while Europe and the U.S. were just beginning to anemically recover from the
‘Great Recession’, Brazil’s economy was already over-heated, humming along at
7.5% growth. Taking quick action, Brazil’s government began aggressive measures,
including raising interest rates, to slow the growth to a more sustainable
level, and did so, with economists expecting its GDP growth slowed to 3% or so
in 2011.
Now with global concerns about a possible recession in
Europe that might spread out into Asia and even the U.S., the government of
Brazil, unlike those of Europe and the U.S. where interest rates are already at
record lows, is in a position of being able to cut interest rates and loosen
policies to further stimulate its economy.
It began those policy reversals in August, and Brazil’s
economy is forecast to continue to grow at roughly a 3% rate this year and in
2013.
Meanwhile, Brazil’s stock market plunged into another bear
market in 2010 when its government began those tightening measures to slow its
over-heated economy. The Bovespa Index declined 45% to its early October low. It
began rallying strongly off that low, triggering a buy signal on our momentum
reversal indicators, and we believe Brazil’s economic growth prospects support
the buy signal. Brazil should be in a better position to continue its long-term
economic growth than most other countries, and is not likely to be affected as
much by the eurozone debt crisis, or a possible recession in Europe, which would
be a larger problem for countries with economies more dependent on exports.
The International Monetary Fund estimates that Brazil,
having passed the United Kingdom last year to become the world’s sixth largest
economy, will next pass France, the world’s fifth largest economy, by 2015. It
could happen even sooner.
We believe Brazil is again presenting a buying opportunity,
and we like the iShares Brazil ETF, symbol EWZ.
In the interest of full disclosure, I and my subscribers
already have positions in EWZ.
Sy Harding is
president of Asset Management Research Corp, and editor of
www.StreetSmartReport.com,
and the
free market blog,
www.streetsmartpost.com.
Editors: You are welcome to quote from this article, or use
it in its entirety, in your publication or on your website, as long as the
credit in the above paragraph is also included. Readers are also welcome to
e-mail, or print and snail-mail it to friends.
These reports reflect
our opinions and are based on our best judgment, but no warranty is given or
implied as to their accuracy. Past performance does not guarantee future
performance.
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