Posts Tagged ‘brazil’
Profit from Brazil’s Agricultural Boom with 2 Easy Plays
Above all, I’m a currency guy. I spend my days in front of a Bloomberg terminal, monitoring every move that takes place in the forex markets.
Before I was a currency analyst, I was a kid growing up in one of Brazil’s poorest states: Piauí.
Recently, though, my home state has become a place of interest for such top business executives as Alejandro Elsztain and Julio Piza. They are both presidents of leading agricultural companies in Argentina and Brazil.
In fact, I met with them during a recent South America trip. Mr. Elsztain revealed to me his interest in my humble home state.
He told me, “I’ve been to Piauí several times. I travel there so frequently that I’ve even learned some Portuguese.”
Piauí is responsible for less than 1% of the nation’s Gross Domestic Product and is described by The Economist as “the Timbuktu of Brazil, a remote, somewhat lawless area where the nearest health clinic is half a day’s journey away.”
So why is Mr. Elsztain so interested in Piauí?
What One Top Executive Knows about
Piauí Could Make You Rich
One word: Cerrado
Most of Brazil’s arable land is located in the Cerrado, a tropical savannah that spreads across a few states, including Piauí. A massive stretch of land, perfect for growing cash crops like corn and soybeans.
Argentina is already one of the main grain exporters in the world. But Brazil is the emerging superpower in the sector. No wonder this major Argentine company is investing so heavily in Brazil.
South America will take center stage in what is one of today’s biggest investment mega-trends.
I’ll tell you two ways to cash in on this megatrend. But first, let’s look at why agriculture will reign as a winning investment in the not-too-distant future.
9 Billion Reasons to Invest
in Brazil’s Agriculture
Speaking with this ag-insider in Argentina solidified my belief the industry has a very bright future.
You see, there are three main factors that drive food demand:
1.) Population Growth
The United Nations forecasts world population will grow from the current 6.8 billion to a whopping 9 billion by 2050. That’s 55 million more mouths to feed every single year.
Today, a rice-and-beans meal remains a luxury to many of the poor in emerging markets. But the middle class of Asia and most other emerging markets will continue to grow. As more people emerge from poverty, quality of life — including dietary habits — will improve.
2.) Increasing Urbanization
Urbanization is a part of emerging market growth. Rural poor move into cities seeking better jobs with better pay.
China has a very big economy, but it’s still a very poor country. Its per-capita Gross Domestic Product is only $6,600, which is seven times lower than America’s. In terms of wealth, the Chinese are as rich as Algeria or Namibia.
But that will soon change. As we’ve written before, the Chinese government increasingly raises minimum wages and its rural residents flood into the major cities for greater opportunity.
3.) Rising Incomes
As the very poor climb the social ladder, they first spend extra money on food.
And they begin to add meat to their meals. That’s why the United Nations estimates meat output will have to double by 2050.
And higher demand for meat intensifies the demand for agricultural products.
Ag Not Just in Demand, But ‘Super-Demand’
“Chickens are nothing more than feathers, corn and water.”
That’s what Julio Piza told me when I met him in Brazil.
He explained what the third world’s newfound taste for meat will mean for agriculture – super-demand. Not only do animals eat the same grains and agricultural products we do, but it takes acres of grazing land to feed a cow, which in turn means less acreage for growing other food.
Limited Supply + Growing Need = Soaring Prices
Besides growing demand for agricultural products, the supply of land is very limited. That’s one reason Mr. Elsztain is investing in Brazil. It has a lot more arable land available than Argentina.
The limited supply of agricultural products is a global trend. The net supply of corn, for example, has been declining since the 1960s.
With more mouths to feed, and limited ways to increase supply, prices of agriculture products have no way to go but up. Billionaire investor Jim Rogers’ stance is the same as mine. In his words:
“The fundamentals for agriculture have gotten better. The inventories are now at the lowest they’ve been in decades, not years. We’re going to have very serious shortages of food everywhere in the world, and prices are going to go through the roof.”
Rising prices will certainly be bad news for your wallets at the grocery store. But the investment opportunities are tremendous.
Here are two ways to play the long-term rally in agriculture that are designed to be easy for the investor, but profitable enough (in a short enough time frame) to satiate the currency trader in me.
Big Agriculture Gains in 2 Plays
And as a currency guy, I can’t help but believe the agricultural boom that’s about to take hold of Brazil will hurtle the Brazilian real upward.
One way to play it is to buy the Brazilian real exchange-traded fund, BZF, and ride Brazil’s agricultural wave to long-term profits. I would buy this fund on pullbacks below $26.50.
Already, Brazil’s Central Bank is taking action to push down its currency. When central banks intervene in this way, the result is temporary. They may succeed in manipulating the real lower in the short term, which means a greater buying opportunity for you.
And although I’m a currency analyst, given everything I discovered in my South American research trip, I can’t help but like agriculture itself.
An easy way to invest in the global trend is to buy the Market Vectors Agribusiness ETF (NYSE:MOO). This fund invests in agriculture-related stocks of companies across the globe. From companies that operate farms to those supplying agricultural equipment and even fertilizer.
By investing in these two funds you will not only diversify away from the declining dollar, but also participate in one of the biggest investment booms of the future.
Evaldo Albuquerque
Editor, Exotic FX Alert
Six Ways to Brazil
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Anyone familiar with international investing knows about Brazil. It’s hard to ignore the fifth largest country in the world by geography and population, the South American commodities powerhouse, and the largest economy in Latin America!
Over the past five years, Brazil’s largest ETF (EWZ) has posted a better than 200 percent cumulative return, while the S&P 500 is just shy of breaking even. Brazil puts the ‘B’ in the BRIC emerging market economies, and there’s a good reason why …
As the global economy falters, emerging markets like Brazil have been enjoying a steady rise in capital inflows and new opportunities. Global infrastructure has driven down the cost of doing business in South America compared to New York City. Although the ride will not always be smooth, Brazil still looks much more attractive compared to any broad-based U.S. investment.
Brazil: The Crown Jewel of
The Southern Hemisphere
Brazil is the economic jewel of the Southern Hemisphere. With a mixture of agricultural, mining, manufacturing, and service sectors, Brazil is one of the more diversified emerging markets.
Brazil dominates Latin America with its rich natural resources. It accounts for most of the world’s soybean trade and nearly 80 percent of global orange juice production. Brazil is also one of the few Western hemisphere countries that is energy independent — thanks to ethanol, abundant oil reserves, and hydroelectric power.
But Brazil isn’t satisfied with its inherited resources. Instead, the Brazilian economy is improving nearly every year …
U.S.-backed General Motors (GM) just opened up a $100 million facility in São Caetano do Sul. It’s one of five global product development sites the car maker runs. GM sees the growth potential of the Brazilian auto market and the cheaper skilled labor force Brazil offers.
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| The famous Christ the Redeemer statue has been overlooking this Brazilian harbor for nearly 80 years and is now overlooking a bustling economy. |
But GM isn’t alone …
Fiat, Volkswagen, and Ford are investing in Brazilian engineering and design capacity. That’s because Brazil is expanding its infrastructure. With the expansion, forests are being cleared, roads are being built, and cars are being sold to an employable population.
And with each new mile of road being laid, another car is driven by a happy employee on their way to work in the new Brazil. So it’s no surprise that as the U.S. auto market shrank in 2009, vehicle sales in Brazil grew 11 percent.
There are six ways to gain access into Brazil’s burgeoning economy using easy-to-buy ETFs:
Play #1—
Ride the Large-Caps
In Brazil (EWZ)
Large-cap stocks represent the largest companies by market capitalization — and Brazil has some great large-cap stocks. The cream of the crop can be found in iShares MSCI Brazil ETF (EWZ).
In two weeks, EWZ will celebrate its tenth anniversary as Brazil’s first ETF. Introduced on July 14, 2000, it has gathered more assets than any other non-U.S. single-country ETF. It currently has more than $9 billion under management.
iShares Brazil holds notable large-cap banks, such as Banco Bradesco Sa Brad and Itau Unibanco, and steel manufacturing giant, Gerdau SA. In addition, EWZ invests in Brazilian energy behemoths OGX Petroleo and Petroleo Brasileiro.
These companies give you a wide swath of the Brazilian economy and keep you away from smaller, sometimes more volatile companies.
Play #2—
Hitch Your Portfolio to
Brazilian Mid-Caps (BRAZ)
The Global X Brazil Mid Cap ETF (BRAZ) just started trading last week. It’s the first ETF to target the mid-cap companies of Brazil and offers access to the country’s internal growth.
Bruno del Ama, CEO of Global X Funds says …
“Such companies are currently sparsely represented in existing exchange traded fund options, yet are poised to benefit the most from the country’s solid macro fundamentals.”
The reason you might pick mid-caps over the large-caps is the internal play on Brazilian growth. Whereas large-caps tend to have more ties to the global economy, mid-caps are more focused on internal consumption. And BRAZ is a great way to buy Brazil, with less exposure to the global economy.
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| To tap into the Brazil’s internal consumer growth, consider BRAZ or BRF. |
Play #3—
Hook onto Small-Caps
In Brazil (BRF)
Brazilian small-caps have exploded over the past couple of years. While the rest of the global market has endured everything from panic selling, flash crashes, and central bank-inspired bubbles, Brazil’s smaller companies have enjoyed a relatively steady, substantial climb up the chart.
The easiest way to tap into Brazil’s small-cap growth is with Market Vectors Brazil Small-Cap ETF (BRF). Like BRAZ, BRF is more of a play on the internal growth in Brazil.
More than 30 percent of BRF’s holdings are in the consumer sector and less than 1 percent is in energy. Not only is BRF unlike EWZ from a market cap perspective, but the sector composition is also vastly different.
Play #4—
Buy Brazilian
Infrastructure (BRXX)
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| Brazil is investing heavily in the infrastructure needed to support its internal growth. |
If anything, Brazil is known for its voracious appetite for internal growth, almost to the exclusion of anything else. While the environment sometimes plays second fiddle to economic concerns, you should still consider the purest way to buy into that internal development …
Launched in February, EGS INDXX Brazil Infrastructure ETF (BRXX) tracks 30 stocks involved in the development and maintenance of Brazil’s physical infrastructure.
Play #5—
Go Super-Long
Brazil (UBR)
Do you like everything you see about Brazil but want to improve your return with every uptick of Brazil’s market? Then ProShares Ultra MSCI Brazil (UBR) is the ETF for you.
UBR “seeks daily investment results, before fees and expenses, that correspond to 200 percent of the daily performance of the MSCI Brazil Index.” So to go super-long Brazil, consider UBR.
Play #6—
Brazilian Defensive
Play (BZQ)
As I mentioned earlier, the upward path for Brazil will not always be a smooth one. In fact, since it is still classified as an emerging market, I expect its markets will undergo numerous bear markets while still maintaining long-term growth.
And when those inevitable setbacks come along, you can exploit the opportunity with ProShares UltraShort MSCI Brazil (BZQ).
BZQ is a 200 percent inverse ETF, which means when the Brazil index goes down 1 percent, this fund should go up 2 percent. It’s a leveraged fund so it’s a great way to play the short-term downside moves, but longer-term performance will be a function of the volatility.
What’s Next for Brazil …
You might be thinking that with six different ETFs to choose from, there would be no need for any more.
Well, just like there are more than six ETFs for the U.S., there will likely be more that invest in Brazil. In fact Global X, the company behind BRAZ, has already made plans to introduce a family of Brazil sector funds.
So there you have it. Six ways to invest in Brazil today and more in the pipeline. Good luck!
Best wishes,
Ron
