Written by Monica Sandler

Sunday, 18 April 2010 14:28

As growth at home flattens, Brazil offers an interesting zone to consider. Projected to grow by 4.7% in GDP this year, with moderate unemployment (7.4%) and low inflation (4.3%), it has all the potential to deliver superior returns within the next years.

The Government with the help of Central bank has controlled debt, both personal and corporate. By introducing high taxes and higher rates, making borrowing hugely unattractive, Brazil has managed to avoid the toxic debt that caused the downturn. Private banks through having to set aside cash were effectively blocked from jumping into the sub-prime loan market.

In the past, Brazil has suffered from bouts of high inflation, high interest rates and an unstable economy. In recent years inflation has posed less of a threat and therefore allowed interest rate cuts. Public spending, previously a hindrance to the economy has dropped below 40% of GDP and is under control. (2009/2010).

Foreign currency borrowing in the past caused further fluctuations in the economy, though having been exchanged for the Real, the country has amassed a $200 Billion reserve to defend its national currency.

A rising star? Demand for commodities is still strong, copper, oil, gold, silver, iron ore, and coal - Brazil has them all. Brazil’s benchmark stock index, the Bovespa has made its roundtrip in the crisis, and is now approaching new highs – something that S&P 500 still has a long way to achieve. The major Brazil ETF (EWZ) has outperformed the S&P 500 by 30%.

If all these fundamentals remain in place, Brazil will continue to grow. Plan for some $200 Billion dollars worth of infrastructure improvements, social programs and education confirms the confidence and the new found stability, though we continue to say check the balance sheet before you invest.

The main iShares MSCI Brazil ETF (EWZ) and Market Vectors Brazil Small Cap ETF (BRF). Currently for March 2010 trending upward (see graph).

EWZ is the most liquid Brazil-specific ETF today, tracking the benchmark iShares MSCI Brazil Index. Traded at volumes of 20 million shares/day, it’s the easiest way to invest in one of the World’s most promising eonomies.

The Market Vectors Brazil Small Cap ETF (BRF) is a newer fund that’s only been around for a year. Its name speaks for itself, and it represents a Growth / Medium size strategy.

For those willing to play more risky strategies LBJ (Direxion Daily Latin America Bull 3X shares) and LHB (Direxion Daily Latin America Bear 3X shares) are the way to go. These are the new Direxion provided triple leveraged funds that allow you to bet in reverse directions. Be careful, though, their trading volumes are shallow, so limit orders only! Also bear in mind that these funds only match index returns during the day, and nothing is guaranteed overnight.

See you in the next 24.

At the time of writing the author had no position in any of the securities mentioned.