The Brazilian economy is barely recognizable to those who knew it more than five years ago. In those days it was plagued by mountains of debt and boom-and-bust cycles. Now everything is different. Indeed, 2008 is quickly shaping up to be the Year of Brazil.
The economy is ready to burst at the seams—but this time the growth looks sustainable. And foreign investors are taking notice in a big way. Should you join them?
Company/Fund
Ticker
Return YTD
Petrobras
PBR
+14.8%
Companhia Vale do Rio
RIO
+17.8%
BlackRock Latin America
MDLTX
+14.45%
DWS Latin America Equity
SLAFX
+12.63
Fidelity Latin America Fund
FLATX
+12.58
First, it's worth looking at some telling figures. Brazil's gross domestic product increased 4.5%, to $1.3 trillion, in 2007, and grew by 5.8% in the first quarter of 2008. The country's benchmark stock index, the Bovespa, is up 5.9% thus far in 2008.
Brazil is on the right side of the global commodities boom. It has enjoyed a 65% price hike for the high-grade iron ore it sells to steelmakers around the world. In the midst of a staggering increase in world energy prices, Brazil stands ready to capitalize on newly discovered offshore oil deposits that may be part of one of the biggest oil fields in the world. Major credit-rating agencies have given their stamp of approval on its government debt by upgrading the country's sovereign rating from junk.
What makes the story even more compelling is how Latin America's biggest economy has largely kept a lid on inflation, even as central banks around the globe continue to battle it. The reason: Brazil's self-sufficiency in many of the commodities whose price run-ups are causing consumer prices to soar worldwide.