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May 09, 2012

Brazil: A Land of Opportunitiy

Source: Seeking Alpha

The Brazilian economy is now over $2.5 trillion in size, the largest in Latin America, and is set to surpass France this year as the world's fifth largest economy. Its annual GDP is in excess of 5%, far exceeding most countries with similar sized or larger economies with the exception of China and Russia. It is part of the trading block MERCOSUR, a block comprised of Argentina, Brazil, Paraguay, and Uruguay. Since the 1990s it has adopted a liberal, free market approach to its economy with limited government involvement.

GDP growth has been positive every single year with only one period of negative growth in 2009, during the global slump. Furthermore, GDP growth has been rising and GDP is expected to rise by 5% in 2012. Brazilian growth has been fueled by large growth in the consumer goods, electronics, telecommunications, and energy sectors. Growth in these sectors have led to rapidly decreasing levels of unemployment in recent years as more people enter the rapidly expanding domestic economy as shown by the graph below. Even during the global recession, unemployment dropped by roughly 3%, a remarkable tribute to the power of the growing Brazilian economy.

Furthermore, this growth has been stimulated by a very healthy government approach towards the economy. Growing liberalization, lessening of regulation, and adopting a free market approach are just a couple of the steps the government is taking to allow business to expand and prosper. This is a good sign for future growth if the positive government approach continues. This is especially important due to recent developments in Latin America where the Bolivian and Argentinean governments have nationalized foreign Spanish companies in "the interests of the people." This will drive companies out of these countries, and possibly into Brazil, where their interests are likely to be protected. This development, if it occurs would fuel further growth.

Investing in companies which trade in Brazilian reals is also very tempting currently due to its recent depreciation against other currencies in 2011. It is currently trading at around 1.8 reals per dollar. This is attractive because companies in Brazil have been able to import their raw materials at cheaper prices and reduce their overall operating expense significantly. Furthermore, companies which export products or services have seen rising demand due to lower relative prices brought about by the depreciation of the real.

To read the full article, please click at the following link: http://seekingalpha.com/article/573551-brazil-a-land-of-opportunity?source=cnbc




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