From anti-globalist to globalist cheerleader

I wrote earlier that Brazil's economy has improved because of its anti-globalist nature... meaning that much of Brazil's growth has been powered by its relatively insular market and strong internal consumption.

That may be true of the past, but Brazil needs a strong globalized system in order to grow in the future.

But Brazil’s ethanol-fueled economy may have hit a rough patch. The country’s stock market went into bear territory this week, falling 20 percent from its recent high. The collapse of the Doha world trade round has put the brakes on Brazil becoming a major exporter of agricultural products to the United States market. Meanwhile, a drop in oil and metal prices could send the country’s economy into a tailspin.

Can Brazilian M&A Stay Hot?

All this probably explains why Lula is so keen to restart the failed Doha talks.

Brazil: The anti-globalist?

NYTimes has a profile on Brazil today. Probably the most interesting part of the story is about Brazil's self-sufficiency.

Here's the money quote:
“What makes Brazil more resilient is that the rest of the world matters less,” said Don Hanna, the head of emerging market economics at Citibank.

As I've looked at Brazil that has been the one thing that has impressed me the most. The country really has been able to build and grow domestic industries and feed its own growth through internal consumption.

Of course, Brazil hasn't had the GDP growth numbers that other large, more "globalized" emerging markets have demonstrated; Brazil's GDP growth has been in the 4-5% range vs. India's 7% range and China's +9-10% range.

But what it lacks in GDP growth, it makes up in resiliency. It is still a tough story to tell because despite the great social advances as of late in Brazil, it is hard to see how 5% growth will really make a dent in the huge social inequalities in the country.

Quietly, Brazil Eclipses an Ally - NYTimes.com

Interesting look at Brazil's rise to become a regional (and global) power.

Quietly, Brazil Eclipses an Ally - NYTimes.com

comScore Releases Top Latin America Web Rankings for April 2008

More interesting data on Internet useage in LatAm

comScore Releases Top Latin America Web Rankings for April 2008

The Latin American social networking wars: Market leader Hi5 has been growing, but so has Facebook — and Sonico? » VentureBeat

I need to make note of this...

The Latin American social networking wars: Market leader Hi5 has been growing, but so has Facebook — and Sonico? » VentureBeat

Brazil after the upgrade

Good Q&A... my main take-aways:

1) Brazil needs to invest more in human capital
2) Brazil needs to invest more in productivity (which means IT investment in my world)
3) Strong Real may mean more global investments for Brazilian companies
4) Brazil has had a strong bull market this year (draw your own conclusions... are you feeling lucky)

Me, I invested in EWZ a long time ago and has been by FAR the smartest (or luckiest) financial decision I've ever made.




FT.com / Markets / Ask the expert - Brazil after the upgrade

The World Is Upside Down

NAN, that's a new acronym for me. It means (apparently) newly acquisitive nations and refers to companies from Brazil, Mexico, India and China going on a global buying spree usually snatching up US or European (or Canadian) assets.)

A lot of the action is in commodities, oil and gas, and manufacturing. Those markets are where all the money is currently flowing (well, maybe not manufacturing) so it is not surprising.

The most interesting story mentioned here Grupo Mexico battling with Vedanta Resources for Asarco; a Mexican company fighting with an Indian company to buy an American copper company.

With China being an increasingly larger consumer of commodities, the battle over American assets won't be to better serve the American market, but to make more of an in-road in the Chinese one.

Some may be inclined to think this represents the end of the US market as the world's most influential one, I don't think I would agree with that proposition. However, it does indicate that we are entering an increasingly multipolar era where global companies and "must-win" markets originate from every corner of the globe.



Op-Ed Columnist - The World Is Upside Down - Op-Ed - NYTimes.com

Decoupled or diversified?

LatAm equities (specifically Brazil) have had quite a run so far this year but questions are starting to surface if the party's over. Can LatAm markets really be "de-coupled" from the US's? How long can LatAm ride the commodity wave which seems to be lifting the region's equity boats?

Personally, I'm not a huge fan of the decoupling theory, the US is still something like +40% of the global economy so if it tanks, everyone’s going to be impacted. But it is a question of how badly and Brazil in particular is (relatively) better shielded from perturbations in the US, mainly because it can rely somewhat on a huge internal market.

If commodity prices drop, that may have a negative impact on the region as a whole. But I think people aren't aware at how diversified the BOVESPA is. Of the 800 or so companies listed, about 80 are in oil, gas, and basic materials and about another 80 are in construction/transportation. Just by eyeballing the sectors represented, it looks like various financial institutions make up the plurality of listed companies.

Sure, this is a very quick look at the BOVESPA and I'm glossing over a lot of key questions (what percentage of the BOVESPA's value is in the commodity/construction companies? how much do the other companies ultimately rely on the functioning of commodities?) But that said, the BOVESPA is more diversified than many seem to think and that may be contributing to some of its gain and resilience.



FT.com / Columnists / John Authers - The Short View: Latin America

New Find Fuels Speculation Brazil Will Be a Power in Oil - WSJ.com

I've read several articles of late on Brazil as an emerging oil power, some even breathlessly saying that the country could displace the Middle East as a major oil supplyer to the US (shame same can't be said at the moment about Brazilian ethanol.)


This line caught my attention:
Some investors aren't waiting to place bets. The publicly traded slice of Petrobras has risen so much this year that the company's market value has surpassed that of household names like General Electric Co. and Microsoft Corp.

So for laughs, I looked up the marketcap of some random large companies. Here are the results for your viewing pleasure:

$ 479.23B Exxon
$ 317.53B Petrobras
$ 303.31B GE
$ 261.24B MSFT
$ 236.19B BP
$ 220.60B WalMart
$ 208.35B Chevron
$ 149.14B Cisco


New Find Fuels Speculation Brazil Will Be a Power in Oil - WSJ.com

Ethanol and protectionism

I heard on the radio the other day about how the increase in the general price of food is being traced back specifically to the increase in corn prices. The logic is that corn is an important source of animal feed so as it becomes more expensive, there is a ripple effect that drives up the price of feed which in turn drives up the price of meat.

The cause of the rise of corn prices? Apparently it is ethanol. Because of the alternative fuel craze, ethanol producers are gobbling up supply of corn and driving the prices up. To venture backed ethanol companies, this rise in prices may not seem like such a big deal (and the farmer certainly love it!) But for the rest of us who like to eat, a rise in food prices is yet another dent in our already banged up wallet.

And with that, the two radio shock jocks went on to slam ethanol, the environmental movement, and the whole green craze for causing more trouble that it is worth.

Taking what they said on the connection between corn and food prices at face value (certainly seems plausible), it is still hard to blame ethanol producers for the run up in corn prices. This is not a green question, this is an economics question.

Agriculture is a heavily protected industry in the US (and much of the world.) As a move to boost farmers’ incomes in the Midwest, the US government has been supporting and protecting the US corn-based ethanol business.

There are however rivers of cheaper sugarcane-based ethanol coming out of Brazil. If the government were to relax protection, these rivers would flood into the US market. The result would be cheaper ethanol that would displace the more expensive corn-based ethanol. This in turn would reduce demand for corn and prices would drop. So if the market was allowed to operate unencumbered, we would have cheaper food and cheaper ethanol.

So if the shock-jocks on some random Bay Area radio station are listening, it is not ethanol or environmentalism that is driving up prices, it is agricultural protectionism.

Brazil tops MSCI

Brazil is now the largest stock market on the MSCI emerging markets index, and as a long-time investor in the Brazilian equity market I have to say this news has brightened up an otherwise less than stellar day.

So, why is Brazil doing so well? The FT has some thoughts here (watch the video too).

While I buy the argument that the commodities is fueling the bull run, I don't have much support for the "decoupling argument" -- that perturbations in the US market have less and less impact on the emerging markets. (How can the world markets be simultaneously "globalized" and "decoupled"?)

That said, Brazil's insular nature seems to have at least buffered Brazil from what is going on in the global markets. Credit within Brazil remains strong, although IPOs have dropped. The FT also notes that Brazil responded favorably to the Fed's drop in interest rates (how does that play into the decoupling theory?)

Brazil is doing uniquely well as a commodity exporter based of off the huge recent discoveries by Petrobras and the positive impact that news had on its stock price.

Growing like a BRIC

This video gets a little down in the weeds on Brazilian tax policy (aren't you glad you landed on this blog... we have all the fun!) but the broader point here is well made, taxes and regulation in Brazil are respectively high and onerous. Brazil has the lowest growth at around 4%-5%, with Russia growing over 6%, India at 8% and China over 10%. Although interestingly, Brazil scores the highest of the BRIC countries in the Heritage Foundation's economic freedom index, so taxes or no taxes, they must be doing something right... or at least better.

Also, Brazilians seem to be very enthusiastic about globalization and are among the few who would actually like to see the pace of change quicken; far more so than Indians or the Chinese. Without have any data to back this up, a wild guess why this may be is that Brazilians see the benefits of globalization but are frustrated they cannot reap these benefits fully because of their cumbersome tax structure.