Why Brazil beats Britain right now – MoneyWeek

I’mnotconvincedonthisone。

Notethat37%ofdemandforlandstillcomesfrom“lifestyle”buyersratherthanrealfarmers,andthereiseverychancethatthisdemandwillfalloffsharplyastheglobaleconomyandtheCitydeteriorateinto2008。

Priceshadalreadystartedto,asagentKnightFrankputit,“soften”attheendoflastyear。

Still,whetherpricesfallorrise10%overthenext12monthsisneitherherenorthereformostofus:withlandatmorethan£10,000ahectare,owningevenanitsysmallholdingiswellintodreamterritory。

Still,thatdoesn’tmeanthatwecan’ttakepartintheboomtimesforagriculture(see:HowtoprofitfromrisingsoftcommoditiespricesforwhyIexpectthisboomtocontinue)。

Wemaynotbeabletobagourselves1,000acresofdairylandinDevon,butwecaninvestinoneoftheworld’sgreatestfoodproducers–Brazil–withnotroubleatall。

TworeasonstoinvestinBrazil

WhyBrazil?

Becauseithastwothingsmuchoftherestoftheworldislacking–aplentifulsupplyoffertilelandandahugeamountoffreshwater,thankslargelytotheAmazonbasin。

ThesefactorshavecombinedtomakeBraziltheworld’slargestsupplierofahugerangeofsoftcommoditiesfromsugarandcoffeetobeefandchicken(not,bytheway,thekindofchickenJamieOliverwouldberecommending–itisn’tnicelyraisedbutitisthekindofchickenmostoftheworldeats)。

Brazil’sabundanceofwateralsomeansthatithasnorealenergyproblemsofthekindtherestoftheworldisfacing:80%ofitspowerissuppliedbyhydroelectricdams,withtwolargenewprojectsunderconstructionontheAmazontocopewithrisingdemand。

Atthesametime,Brazil,unliketherestofus,hasgottogripswithbiofuels。

Ithaslongbeenproducingethanolmadefromsugarcane(whichisconsiderablymoreefficientthantryingtomakeitfromcorn,astheAmericansare)anditcannowsellitformuchthesamepriceaspetrol。

ButBrazilisn’tjustaboutfarmlandandfood。

ItalsohashugereservesofthehardcommoditiessomuchindemandfromemergingAsia。

Itisoneoftheworld’slargestproducersofironoreandalsohasgooddepositsofuranium,nickel,goldandplatinum。

Betterstill,itappearstohaveasignificantamountofoil。

OilgiantPetrobraslastyearfoundwhatOGlobo,theBraziliannewspaper,calleda“gigantic”fieldoflightcrudeoilandnaturalgas(possibly5billionto8billionbarrelsworth)initsTupifield,justoffshorefromSaoPaulo,andrecentlyannouncedthediscoveryofahugenaturalgasfieldoffthecoastofRio。

Itwilltakeawhileforthisoiltocomeonstream,giventheproblemsproducersarehavingsourcingdrillingequipment,rigsandsoon。

Butifthedepositsareasbigastheyseem,Brazilcouldendupinthesameoil-exportingleagueastheGulfcountriesandVenezuela。

Brazilseconomylooksstrongtoo

Alsogoodnewsisthat,atatimewhentheeconomiesandthecurrenciesoftheUS,theUKandtheEurozonelooktobeinprettydismalshape,Brazil’sisnot。

Itisrunningatradesurplusofabout$40billion(£20billion)ayear(andrisingascommoditypricesrise)anditsgrossdomesticproduct(GDP)iscurrentlygrowingatanannualrateofover5%ayear。

Ithasalargemiddleclassmadeupofabout20mhouseholdsandbothpersonalandcorporatedebtlevelsarelow(theratioofmortgagestoGDPinBrazilis2%;intheUKitismorelike80%)。

Brazilalsoappearstohavelittleexposuretothesub-primecrisisrattlingtheemergingworld–sofar。

Finally,itispoliticallystable:JimSlater,agreatfanofBrazil,describedpresidentLuizInacioLuladaSilvatomeinatalkoverbreakfastafewweeksagoasbeingboth“pragmatic”and“popular”。

Rightnowit’shardtofindplacesthatmakesenseashomeforyourmoney。

LookattheUK。

Inthepastfewdayswe’veseenfactorygateinflationup1%to5。

7%,thebiggestrisefor16years,andthegovernoroftheBankofEnglandhassaidthatconsumerpriceinflation(CPI)couldbreakabove3%ifinterestratesfallasthemarketsexpect。

We’veseensomenastyresultsfromBradfordBingley(BB),whichnowsaysitexpectsa“continualincreaseinmortgagearrearsandasteepincreaseinrepossessionarrears”。

And,ofcourse,housepricesarestillfalling–Januarymarkedthesixthsuccessivemonthinwhichmoresurveyorsreportedafallthanariseinhouseprices。

ThenumberscomingoutoftheUSandEuropearenobetter。

AsTimPrice,chiefinvestmentofficerofUnionBancairePrivéeputsit“thisisnotagoodenvironmentforequitiesfullstop”。

Brazilisnotperfect。

ItisnotperfectlygovernedanditsstockmarketwillneverbeentirelyimmunefromtheshockshittingtheUS。

Butatatimewhenmanyotherregionsaresuffering,ithashugeexposuretooneofthefewsectorsthatisstillworthinvestingin–agriculture–andIthinkthatmakesitworthatleastasmallbet。

How?

ThesimplestwayistobuytheiSharesMSCIBrazil(IBZL)exchangetradedfund。

JimSlatertellsmehealreadyhas–tothetuneof£2m。

FirstpublishedinTheSundayTimes17/2/08

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