(The opinions expressed here are those of the author, a
columnist for Reuters)
By John Wasik
CHICAGO, June 16 The beginning rounds of the
World Cup have offered thrills to global soccer fans. But what
should excite investors about Brazil?
The South American country is brimming with natural
resources and growth possibilities. Despite concerns about its
growth slowdown and its preparations for the upcoming Olympics,
the country can be a good holding if global population growth
remains on course.
There are more than a dozen exchange-traded funds (ETFs)
that hold Brazilian stocks exclusively. They vary from
broad-based index funds to specialized ETFs that use leverage to
amplify market moves.
The largest ETF covering Brazil is the $4 billion iShares
MSCI Brazil Capped fund, which holds large companies
such as Itau Unibanco, Ambev SA and Banco
Bradesco SA. The fund is up 11 percent year to date
through June 13, compared with a 6.4 percent rise for the
Morningstar Latin America stock index. The fund charges 0.61
percent in annual expenses.
A runner-up in Brazilian funds is the Market Vectors Brazil
Small-Cap ETF, which holds small companies such as SUL
AMERICA SA, Odontoprev SA and Mills
Estruturas. The fund charges 0.60 percent in annual
expenses and is up 4 percent year to date through June 13.
Ignoring the current excitement over the World Cup, global
investors have raised the yellow penalty card when it comes to
Brazilian economy. It has only grown 2 percent annually since
the current leftist president, Dilma Rousseff, took power in
That's a disappointing rate considering that the country had
been one of the emerging market darlings in the "BRIC" group,
which also includes Russia, China and India. Brazil grew by
about 7 percent in 2010, roughly keeping pace with the
world-leading growth in China.
Lately, though, the home to Carnival and the Amazon River
Basin has slipped. It is expected to grow only 1.8 percent this
year, according to an International Monetary Fund forecast. The
country's economy expanded by only 2.3 percent in 2013, the
second consecutive year that it posted that growth rate. The IMF
forecasts growth may only inch up to 2.7 percent next year.
An even more recent survey by economists last week pegged
Brazil's growth at 1.4 percent this year, down a notch from 1.5
percent in an earlier survey. Inflation is expected to remain
uncomfortably high, at nearly 7 percent.
If economic forecasters are ho-hum on Brazil, why should it
be a long-term holding? The answer: commodities are essential to
the developing world, and that is where Brazil can continue to
Three years ago, Brazil's bountiful exports helped push it
past Britain as the world's sixth-largest economy. It's one of
the largest producers of high-quality coffee beans, soybeans,
corn, orange juice and sugar. Brazil's huge investment in
soybean production, for example, has catapulted it above the
United States as the world's largest producer.
Although bad weather and climate change will affect Brazil's
agricultural output, the country will largely benefit from the
growth in the world's population, particularly in the developing
By 2050, the world's population is expected to reach nearly
10 billion people, according to Pew Research Center. Africa's
population, which is growing the fastest, is expected to account
for one quarter of the world's people, compared with just 15
percent in 2010. India is expected to replace China as the most
populous nation. Growing populations will need more food,
especially those countries where arable land is scarce.
BUFFERING SINGLE-COUNTRY RISK
Despite Brazil's role in meeting the growing long-term
demand for commodities, I'm always leery of putting too many
eggs in the basket of a single country, especially emerging
ones. Their currencies, economies and fortunes rise and fall
with any number of factors. Brazil will still have short-term
problems with its currency, inflation and low commodity prices.
For a more diversified and lower-risk play in Brazil,
consider buffering it by investing in an emerging markets ETF
such as the iShares MSCI Emerging Markets Fund, which
costs 0.67 percent annually to own. It holds a small stake in
Latin America - about 17 percent of its total holdings -
compared with 63 percent of its portfolio in Greater Asia. The
fund is up 4 percent year to date through June 13.
A broader basket will not only lower your exposure to the
short-term risks in Brazil, but give you a slice of countries
where growth is advancing faster than the rate of inflation.
(Follow us @ReutersMoney or here
Editing by Lauren Young; and Peter Galloway)