Monday, October 15, 2007
I'm heading to Brazil.
Rich in natural resources and cheap labor, Brazil has ridden the commodity boom to a record trade surplus of $46 billion in 2006. Brazil is a primary exporter of bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, uranium, petroleum, hydropower, and timber.
Rich in cash, Brazilian companies, particularly miners and steel makers, have begun to emerge as key players on the world's M&A stage.
Earlier this year, mining giant Companhia Vale do Rio Doce (RIO) bought out Canada's Inco for $17 billion in cash: the largest acquisition by a Brazilian company ever.
In 2006, Brazilian steelmaker Companhia Siderurgica Nacional (SID) barely lost out to India's Tata Steel in its $12 billion acquisition of Corus Group.
However, the big news in Brazil today extends beyond mere commodities. Brazil is now the fifth biggest market in the world for IPOs, taking 47 companies public in the first eight months of 2007. Altogether, Brazilian companies raised $18.5 billion: a 330% increase from the same period in 2006.
Today, Brazil accounts for 90% of the IPOs in Latin America.
These aren't just commodity plays either. In the last year Brazil has seen IPOs in everything from homebuilders to dental insurance providers. Attracted by the growth of a bull market – the Bovespa, the Sao Paolo stock exchange, is up 275% in the last five years – as well as the improved accounting standards, foreign capital has piled in. Of the IPOs in 2007 so far, domestic investors only made up a third of the buyers.
There are a number of ways to play this market. The easiest and most diversified method would be to buy the iShares MSCI Brazil Index (EWZ).
Or you could find a particular Brazilian play. There are certainly plenty of opportunities that could get your mouth watering. Former Brazilian President Getulio Vargas' efforts to create an industrial nation during the 1940s resulted in the creation of several companies with incredible advantages over their competition.
A perfect example is SID, which I mentioned earlier. In 1941 Vargas gifted SID the Casa de Pedra mine: a world-class mine containing over 275 million tons of high-grade iron ore. Vargas's gift alone made SID one of the lowest cost steel producers in the world.
It'd be like George W. Bush giving General Motors 50 years' worth of automobile parts, free.
I'm heading to Brazil to look for other, similar opportunities in November. If you live there, or have contacts there, please contact me at [email protected].
China needs oil... PetroChina and China Petro & Chemical at new highs.
Gold stays above $750... Seabridge Gold, Randgold, and Miramar hit 52-week highs.
Canada's bull run lifts Canadian Imperial Bank, PrimeWest Energy Trust, and Royal Bank of Canada to new highs.