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Shidlo: How to Beat Obama on Investing in Brazil

By    |   Monday, 21 March 2011 12:21 PM

The objective of President Barack Obama’s visit to South America is to catch up with China’s trade with Brazil, the world’s seventh-largest economy.

Traditionally, the United States was Brazil’s largest trading partner but years of tensions and neglect by the Obama administration created an opportunity for resource-hungry China to become its top partner. But is it too late for the United States?

Obama’s visit to Brazil — which wasn't postponed during a period of global tension caused by Libya’s war and a nuclear crisis in Japan  — emphasizes the importance of this country.

Brazil has nearly 200 million people and is nearly the same size as the United States. Brazil is no longer a country which can be ignored by the United States. Brazil has become the world’s seventh-largest economy and also a major exporter of food, oil, minerals and industrial products.

While the United States had a trade surplus of $11.4 billion with Brazil last year, the future is no longer as green as Brazil demands that the United States end agriculture subsidies and facilitate ethanol exports.

The United States needs to compete with China, which is a larger importer of soybeans, oil, iron ore, agriculture products as well as other minerals.

Obama not only met with Brazil’s new president, Dilma Rousseff, but also with 300 top executives at the U.S.- Brazil Business Summit.

President Barack Obama
These meetings are intended to increase job creation in the United States by increasing exports to Brazil. At the front line is the effort to sell F-18 military planes (manufactured by Boeing) to the Brazilian Air Force at a value of at least $4 billion to $6 billion.

Although Brazil’s previous president, Luiz Inácio Lula da Silva, favored French military planes, Rousseff, who aims to improve relations with the United States, decided to restart the bidding process.

While Obama’s visit to Rio de Janeiro might be behind the curve, investors might still have the opportunity to improve the performance of their portfolios.

Investors can either invest in Brazil exchange-traded funds, or ETFs, such as EWZ, which is overweight in energy and mineral companies (like Petrobras and Vale) or a small cap ETF such as BRF, which focuses on domestic companies.

One other area which Obama is trying to help U.S. companies export is in infrastructure.

If you are a sports fan, you probably know that Brazil will host the 2014 FIFA World Cup as well as the 2016 Olympic Games. Brazil will invest in soccer stadiums as well as airport renovations. Although it isn't clear to what extent U.S .companies will benefit from this infrastructure boom, investors can invest in BRXX. It is an ETF which focuses on Brazilian companies that are in the infrastructure sector, specifically: utilities, industry, communication services and basic materials.

Another opportunity to cash in on Brazil’s economic boom is to invest in Brazilian companies that are listed in the U.S. stock exchanges, or American Depositary Receipts (ADRs). There are 30 Brazilian companies listed in the NYSE, one in the Nasdaq and another 39 over the counter (OTC).

While the ones listed in the NYSE are more familiar (Petrobras, Vale, Brazil foods, major banks and utilities), some of the over-the-counter companies are multibillion enterprises which shouldn't be ignored. These include OGX, a major oil and gas company and JBS, the world’s largest beef producer (more than $9 billion capitalization).

OGX is part of Eike Batista’s (the world's eighth richest person) group of companies and Brazil’s second-largest oil and gas group after Petrobras, the semipublic oil company.

With the ongoing turmoil in the Middle East, Brazil’s stable democracy with large oil and gas reserves, iron ore, minerals, an agriculture powerhouse, a growing middle-class and high-tech industries (such as Embraer, a plane manufacturer) makes it seem like an attractive economy in which to invest.

Another added value of investing in Brazilian companies is that it is a back door to trading with Africa, especially the Portuguese speaking countries — Angola and Mozambique.

It seems that China beat the Obama administration in their early investments both in Brazil and Africa but it isn’t too late for the individual investor.

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The objective of President Barack Obama s visit to South America is to catch up with China s trade with Brazil, the world s seventh-largest economy. Traditionally, the United States was Brazil s largest trading partner but years of tensions and neglect by the Obama...
Monday, 21 March 2011 12:21 PM
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