March 12, 2007
Why Invest in Brazil
In his state of the Union, President Bush called to eliminate our dependency on foreign oil. President Bush emphasized that alternative fuels should replace oil as a major source of energy. Particularly, the president emphasized Ethanol. In the US, ethanol is derived from corn. This can be mixed to create motor fuel and fuel additive and even though it produces 30% less energy than oil, the president as well as the House and Congress are pushing for major reforms to increase spending in developing the technology.
US can produce ethanol, but when it comes to comparative advantage, Brazil is king. Brazil's ethanol is derived from sugar cane, it contains a lot more energy than corn based ethanol and because its produced in Brazil (where land is abundant and labor is cheap) its a much better alternative than US produced ethanol.
Recently, President Bush went on a trip to visit many Latin American countries. Socialism is growing in Latin America because of Hugo Chavez in Venezuela and Morales in Bolivia. This pushed the President to turn to one of the few (economic) allies the US still has in the region, Brazil. The US has all the intentions of using ethanol and Brazil is the biggest producer and exporter.
The export of ethanol will in all likelihood improve economic conditions in all of the areas of the Brazilian economy. The increase in exports will cause foreign investors to increase their capital expenditure in this country giving way to long term economic growth.
I am bullish on Brazil as a whole. The best way to play this is to buy the Brazi ETF ticker, (EWZ). There are many risks to consider when investing in emerging markets but based on risk/reward, EWZ is definite buy.
To track the performance of EWZ follow this link
Stock Price and Key Statistics.