Emerging Markets: three ways to profit from Brazilian flair

In the fourth of our series on emerging markets we look at three ways to tap into the Brazilian growth story. As the country gears up to host the 2014 World Cup and the 2016 Olympics, we ask if it can deliver on the investment front as well.

While most of the world considers Brazil’s greatest export to be its Samba football and global icons such as Pele and Kaka (pictured), dazzled investors are also proclaiming the Latin American country as an investment star of its own.

Transformed economy

A rising superpower, Brazil’s ascendancy alongside the likes of China and India is rooted in solid economic foundations, making it an extremely appealing proposition to long-term investors.

But as Kaka demonstrated during the World Cup with Brazil’s disappointing results – which investors ought to note – it is possible to underperform even if you appear to have all the components of a winner.

      ** How much £1000 invested in year 2000 would be worth today **

Rich in natural resources

There is no doubt on the surface Brazil looks like a winner. Over the past decade the authorities have worked towards structural reforms, with monetary and fiscal changes brought about in conservative fashion. Inflation has been tamed, net debt brought down to 40% and foreign reserves boosted to more than $200 billion amongst a series of measures installed to ensure long-term economic stability.

Moreover, what has undoubtedly aided Brazil’s growth has been the country’s incredibly vast natural resources. Perhaps even more importantly, Brazil has established itself as a key exporter of commodities to resource hungry and fast-growing Asian economies such as China.

Oil discoveries

Most recently, there have been major oil discoveries off the coast of Brazil and the country's domestic growth, which is increasing at a record rate, is to receive the twin boost in the form of the 2014 World Cup and 2016 Olympics, both held in Brazil.

There is a plethora of other equally impressive statistics – namely that Brazil has 20% of the world’s drinkable water and 22% of the entire arable land surface on the planet – to suggest the future appears bright for the once poor nation. Though one has to wonder how much of this is due to deforestation of the Amazon rainforest, which itself has a number of unpleasant side effects.

Investors in mutual funds often overlook that the underlying stocks may engage in activities – regardless of whether it is alcohol, tobacco, armaments or deforestation related – that are ultimately funded and therefore supported by the end investor. For the environmentally conscious, this is a dilemma that needs to be considered.