Forget Brazil's hyperinflation of the 1990s and the risk of imminent default on debt earlier this decade. Foreign direct investment is pouring in to the country, and the stock market and currency have handsomely rewarded foreign investors. On April 30, Standard & Poor's bestowed an investment-grade rating on Brazil's foreign debt.
The government's skilled management of fiscal and monetary policy broke the back of inflation and restored confidence in the nation's currency, the real. Budget deficits have given way to surpluses. Interest rates have responded, tumbling from 27 percent in October 2003 to 11 percent today. Investment and consumer spending are robust.
Booming exports are generating large trade surpluses. Sun- and water-kissed Brazil has become an agribusiness giant, exporting a cornucopia of soybeans, sugar, coffee, orange juice, beef and chicken to a hungry world. The country is a major exporter of iron ore and other minerals, and, after some major recent offshore-oil discoveries, it seems the lucky country is rich in hydrocarbon reserves, too.
Seasoned emerging-markets portfolio managers rank Brazil behind another emerging powerhouse, India, but well ahead of China and Russia in terms of the number of attractive companies available for investment.
For instance, Vale (symbol RIO), a mining company, earns high marks for quality management. Steel companies around the globe snap up its iron ore. A series of offshore-oil finds has made Petrobras (PBR) one of the few major integrated oil companies with bright prospects for volume growth.
Brazil is rapidly becoming a middle-class country, so many of the best investment opportunities are in companies that cater to the domestic population of nearly 200 million. For example, lending for mortgages, automobiles and other consumer goodies is surging.
Jeff Urbina, co-manager of William Blair Emerging Markets Growth, thinks highly of Banco Itau (ITU) for its operational prowess. In fact, many emerging-markets fund managers see value in smaller companies that concentrate on domestic business and are less tied to the global commodity cycle.
The best way to gain entry into the domestic economy is through a diversified fund. T. Rowe Price Latin America (PRLAX) has a fine long-term record, and nearly 70 percent of its portfolio is in Brazilian stocks. London-based manager Gonzalo Pangaro says he's focusing on Brazilian consumers by investing in department-store chains, credit-card processors and real estate companies. He likes financials, such as Itau and Banco Bradesco (BBD). One of his favorite exporters is Perdigao (PDA), a big poultry producer.
Andrew Tanzer is a senior associate editor at Kiplinger's Personal Finance magazine. Send your questions and comments to [email protected]