Many investors have been looking for ways to diversify their investments, seeking international options that provide a slightly higher return. Among the options for international investment is investments in emerging countries as a low-risk, high-return alternative. Brazil is one of those countries in which the possibility of applying can be verified.
According to the International Monetary Fund’s (IMF) year-end 2020 data, it is ranked as the twelfth-largest economy in the world, with a GDP of US $1.363 trillion, but it continues to climb back from a devastating recession that was fueled by political uncertainty, high unemployment rates, and inflation, not to mention the ongoing effects of the global COVID-19. pandemic.
Key Takeaways
- Brazil’s number-one export is soybeans. The country is the second-largest producer of iron ore in the world, and it produces more ethanol than Asia and Europe combined.
- Brazil has become a top-tier economy with a growing technology sector and an inward focus that should reduce commodity dependence.
- One of the primary risks of investing in Brazil is its political instability; it has a volatile political history that remains persistent even today.
- Opportunities to invest in Brazil include U.S.-listed ETFs, American depository receipts (ADRs), and securitizes listed on Brazil’s own stock exchange.
- High interest rates in the country and high inflation allow federal bonds to obtain high returns and with low risk
Benefits
Like most emerging markets, investing in Brazil involves a trade-off between risk and reward because political instability and commodity-dependence make it riskier than developed markets. International investors know Brazil best for its rich natural resources. According to the Observatory of Economic Complexity (OEC) Brazil’s number-one export is soybeans, and they account for nearly 14% of all the country’s exports, totaling $33.2 billion as of September 2020. In addition to its extensive offshore oil fields, the country is the second-largest producer of iron ore in the world, behind Australia, exporting $20.5 billion, and it produces more ethanol than Asia and Europe combined.
These resources help it cheaply produce a wide variety of industrial and consumer goods while serving as a key raw material supplier to countries like China, the U.S., and Argentina, which are its three top export destinations. China leads the way receiving $64.3 billion worth of Brazil exports, while the U.S. and Argentina are distant contenders at $29.3 billion $15.0 billion, respectively.
Brazil also has a relatively stable economy. After taking steps toward fiscal stability and liberalizing its economy in the 1990s, Brazil has become a top-tier economy with a growing technology sector and an inward focus that should reduce commodity dependence.
Risks
One of the primary risks of investing in Brazil is its political instability; they have a somewhat volatile political history that remains persistent even today. In 2015 and 2016, many officials were tied to criminal activities in conjunction with the partially state-owned oil giant Petrobras.
These scandals led to then-president Dilma Rousseff being impeached and convicted in August 2016. Punishments against corporations involved in these scandals have limited some of their business opportunities, which has led to opportunities for foreign companies to step in and pick up where they left off.
Brazil is also more dependent on exports than developed countries like the U.S., while it also relies heavily on external financing. The commodity downturn has taken a toll on the economy as a result.
The Bottom Line
It is a good idea for any investor to diversify their portfolio, and one of the main ways to do so is by investing in internacional stocks. With a growing economy that’s recovering from a recession, Brazil is a country of interest for many potential investors. Before investing in Brazilian companies, it’s important to note the state of their political climate and the outlook of their export industry.
