The Marathon to Gold: Invest in Brazil

While I feel bad for Chicagoans and America for losing out on the bid for the 2016 Summer Olympics, I am very excited for Brazil. It is about time South America got the chance to host these games. My one Olympics experience was in Atlanta in 1996. I had a lot of fun back then, but I also saw firsthand the economic impact that the Olympics can have on a city. (Unfortunately, I only managed to move to Atlanta nine years later).

The Olympics’s impact on Brazil should bolster the momentum that has already been growing in South America’s economic powerhouse. Brazil’s economic growth has been very uneven, but it has been trending slowly upward for the past ten years. Of course, Brazil did not escape the global recession, but it looks like domestic consumption is picking up, and the unemployment rate is declining. I am doubting there is much risk of a “double dip” for Brazil. I now count Brazil as second to commodities in terms of my investment interest (there is some correlation between the two).

Last year, I wrote a positive review on Amazon for “Investing in Brazil Stocks: Get Rich from the South American Giant“.

This book describes the top publicly traded companies in each of Brazil’s major industries. I just recently bought back into the Brazilian telecom Tele Norte Leste Participacoes S.A. (TNE) after it re-established its dividend, now an attractive 8.2%. If you do not have the time or inclination to study individual companies, you can always purchase the ETF for Brazil, EWZ.

EWZ responded positively to the Olympics news, rising 1.9% on Friday while the S&P 500 finished down for the fourth consecutive day. EWZ made a fresh 12-month high earlier in the week. Also unlike the S&P 500, EWZ’s March lows did not violate the lows from last Fall. EWZ seems good to go for buying on dips/corrections.

*Chart created using TeleChart:

Steel stocks provide one more interesting contrast between Brazil and America. American steel-related stocks like U.S. Steel (X), Steel Dynamics (STLD) – which I am looking to buy again, Commercial Metals (CMC), and Cliffs Natural Resources (CLF) have already corrected 10-25% from recent 2009 highs. Brazilian steel-related stocks like Companhia Vale do Rio Doce (VALE) and Gerdau S.A. (GGB) are following along with EWZ and remain just below 12-month highs.

I expect the Brazilian economy to out-perform America’s for many years to come. The coming of the Olympics should seal the deal for at least the seven years until the torch is lit in Rio.

Be careful out there!

Full disclosure: long TNE and STLD