Weiss bets on Brazil with a hometown advantage

Martin Weiss has a significant advantage over most analysts when he considers the opportunities of investing in Brazil. He grew up there, and with his wife’s family living in São Paulo, he has visited Brazil almost every year for three decades.

Here, the editor of Safe Money Report says, “I know the country well. I am in close touch with its strengths and fully aware of its weaknesses. And I can tell you flatly: Brazil is about to take off.”

“Brazi is almost as big as China, boasts more natural resources, enjoys a broad, modern industrial base and is closer to the U.S. culturally, politically and geographically. And, it is still in the pre-take-off stage, giving new investors an opportunity to catch a ride without overpaying.

“Starting four years ago, Brazil’s President, Luiz Inácio Lula da Silva, transformed the country from one of the world’s most fiscally shaky nations into a model for fiscal responsibility.

“In his first term, which just ended, he reduced consumer price inflation from 12.5% in 2002 to under 3% in 2006. He paid off every penny owed to the IMF. He slashed Brazil’s total domestic debt load. And he transformed Brazil’s trade balance, formerly a deficit, into a $46 billion yearly trade surplus.

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“When Lula came to power, the São Paulo stock market was plunging. But now, it has been booming. Brazil’s Bovespa Index rose 15% in 2004, 30% in 2005, 35% in 2006. But from everything I can see, this is just the beginning.

“The clincher: Lula’s second term in office, which began this month, helping to kick off a whole new series of economic reforms. Until now, for example, Brazilian entrepreneurs had to plow through endless amounts of red tape to start a new business and then pay at least eight different taxes to operate one.

“But starting this year, they will enjoy vastly simplified rules for incorporation ... just one, lower tax instead of eight ... plus double the supply of credit. Already, new projects approved by the national development bank have surged 36%.

“This investment explosion is key. Without it, China and India would not be where they are today. With it, Brazil is, right at this very moment, revving up for an economic take-off that could rival China’s and India’s.

“It won’t happen overnight. Even Lula’s forecast of 5% GDP growth in 2007 is being questioned by some analysts. But with surging investment, Brazil’s economy has the potential to steadily accelerate to China-like growth levels by the end of the decade.

“You can either wait for Brazil to take off and pay much higher prices for Brazil-based investments. Or you can act now and pick up Brazilian companies that are selling for lower price-earnings ratios than the equivalent companies in other emerging markets.

“When I was growing up in Brazil, it was almost impossible for individual American investors to buy these companies. Today, it’s as easy as buying U.S. shares. No investment is without risks, and Brazil certainly comes with its fair share. But consider some of Brazil’s leading stocks traded on U.S. exchanges:

“Embraer (NYSE:ERJ) is among the world’s largest aircraft manufacturers —surpassed only by Boeing and Airbus. It is especially strong in the fast-growing market for regional aircraft. And it makes military aircraft sold not only to the Brazilian Air Force but also to the U.K., France and Mexico. Since January 2002, while the Dow Industrials has risen by 24.7%, Embraer is up 102%.

“Petrobrás (NYSE:PBR) has done ever better, rising 12 times faster than the Dow in the past five years. It supplies oil and natural gas to refineries in Brazil and sells surplus production in foreign markets. It refines, transports, exports oil, owns petrochemical companies and fertilizer plants and invests in natural gas transportation and distribution.

“But Companhia Vale do Rio Doce (NYSE:RIO) puts both Embraer and Petrobrás to shame, rising 591% over the past five years - 24 times faster than the Dow. It is the world’s largest producer and exporter of iron ore and pellets, the world’s second largest producer of nickel, manganese and ferroalloys, and one of the world’s lowest-cost integrated producers of aluminum.

“Brazil’s banks have also been growing by leaps and bounds. And the three key Brazilian-owned banks traded on the New York Stock Exchange — Bradesco (NYSE:BBD), Itaú (NYSE:ITU) and Union of Brazilian Banks (NYSE:UBB) — all of which have beaten the Dow by a wide margin.

“Or you can use the widely traded Exchange Traded Fund linked to Brazil’s stock market index: iShares MSCI Brazil Index (ASE:EWZ), up 243% since January of 2002 (nearly 10 times more than the Dow).”