Brazil: The Booming BRIC

"Brazil is the country of the future... and always will be," observed a wry Charles de Gaulle about Latin America's largest economy. When Goldman Sachs predicted that Brazil was to become a leading global power by 2050 as one of the fast-growth "BRIC" economies, some foreign investors were rightfully skeptical. But if anything, that timetable has accelerated. Today, Brazil is set to take over France and the United Kingdom as the world's fifth-largest economy as early as 2025. And with Rio de Janeiro having recently won the right to host the Olympics in 2016, expect to see a lot more about Brazil in the popular media.

The Booming BRIC: Big Country, Big Profits

Brazil is bigger than you think it is. You could fit 12 states of Texas into Brazil. Put another way, Brazil is about 90% the size of the United States, and its population of 185 million is equal to the United Kingdom, Germany and Italy combined.

As impressive as Brazil's size is, it's more the size of its stock market gains since the market bottomed in March that caught the attention of U.S. investors. So far this year, Brazil's Bovespa index is up over 76%. And thanks to the strong appreciation of Brazil's currency, the real, U.S. investors in the dollar-denominated ETF (EWZ) are up an eye-popping 110%.

So why the sudden popularity of Brazil among investors? When rating agency Standard & Poor's awarded Brazil an investment-grade credit rating last year, the rise in the value of the market on that single day was greater than the value of the entire Bovespa in 2002. Achievement of an investment credit rating opened the floodgates of money from some of the biggest global pension and insurance funds, U.S. fixed-income investors, including pension funds and other institutional investors. It put Brazil on the global investment map.

The Booming BRIC: From Bust to Boom
Brazil epitomizes the roller coaster that has been Latin America's economic fortune over recent decades. Half a century ago, Brazil was one of the most rapidly growing economies in the world. It experienced another growth spurt in the early 1970s, growing a China-like 9.8% a year on average between 1970 and 1974. But each period of rapid growth was followed by sharp economic slowdowns and dizzying inflation. For much of the 1980s, Brazil grew by less than 1% a year.

But since 2002 -- the year left-leaning President Luiz Ignácio Lula da Silva was elected-- Brazil has been on a roll. Once a poster child for the Latin American debt crisis of the 1980s, Brazil's fiscal budget today is in a surplus and the country is a net creditor. Inflation has plummeted from 70% per month in 1990 to just single (annual) digits by 2007. Thanks to booming commodity exports, Brazil today boasts large-trade surpluses and dollar reserves that approach $300 billion. The inflow of dollars from the commodities boom has allowed Brazil to pay off foreign creditors early.

or a while, this economic diet put a cap on Brazil's growth rate, which averaged just 2.6% a year up until 2007. That made Brazil seem like an economic laggard compared with BRIC rivals India and China with their 7%-10% growth rates. Ironically, it is the "Great Recession" that has allowed Brazil to strut its stuff. Last quarter, Brazil's economy grew at an 8%-10% annualized rate. While much of the global economy struggles with recession, Brazil's economy will grow by 5% in 2010.

Brazil has always been a big exporter of commodities, and today is the world's largest exporter of coffee, sugar, chicken, beef and orange juice. But in recent years, Brazil has also become the second-biggest destination for foreign direct investment into developing countries after China. For the past two years, Brazil has been the world's fastest-growing car market. Brazilian companies have stepped onto the world stage with surprising alacrity. Vale (VALE) has become one of the world's biggest mining companies, and exports virtually all of its iron ore production to China. And if you fly regularly in the United States, chances are that you've flown on a sleek, new Embraer (ERJ) jet, which is now the world's third-largest manufacturer of passenger jets after Boeing and Airbus.

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