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  • Why Invest in Brazil?

    2010 - 06.29

    Of the BRIC countries many traders don’t think that an investment in Brazil is the best bet for their stock portfolio when there is also a choice of China and India. After all, among the BRIC funds China has the largest population and is the world’s third-largest economy. India is the world’s largest democracy and has the second most populous nation.

    Compared to this Brazil is roughly two thirds the size of the US in terms of population and the country is half the size of Russia. But don’t sell Brazil short, among BRIC funds, this Latin American country offers fantastic investment opportunities.

    For years the Chinese have been inappropriately allocating capital on a grand scale and the interest rate in China has been far below the economic growth rate, which for 20 years has resulted in a runaway real estate market. There is also a growing concern of China’s protectionist policies and fears of a US trade war. This means that not only are private sector companies from foreign nations at a disadvantage, but also BRIC investments in China are at risk of being in a company run by Beijing instead of businessmen. After all, China is a country that prefers state owned enterprises.

    Compared with China, India offers more of a long term promise due to its democratic government. Despite this, long term profits won’t be forthcoming anytime soon as of all the BRIC nations India is the poorest nation and its infrastructure is a serious problem. India is likely to lag behind other BRIC funds until this improves.

    I can see a lot of potential in Russia, it is a huge country with vast natural resources but the lack of economic diversification and stability means it is a risky short term bet. The emerging market has been volatile due to currency problems and inflation worries in global markets.

    Given these risks it seems that Brazil offers the most advantageous opportunities for investment. Compared to the other BRIC countries Brazil businesses are not controlled by the state, the nation is rich in natural resources, which has diversified the economy and the nation enjoys a lack of dependence on exports of consumer goods. Also, unlike the other countries in this group Brazil has a stable democracy.

    There are other advantages of investing in Brazil than just the obvious. Brazil generates 73% of its energy from hydroelectric power and is home to one of the largest oil reserves in the world. Their middle class is booming so sales inside this BRIC investment zone offset sales of resources abroad. There is a competitive manufactured goods industry in which Brazil does not engage in a mercantilist exchange rate policy to boost exports.

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