Why Would You Want to Invest Offshore in Brazil?

WHY WOULD YOU WANT TO INVEST
OFFSHORE IN BRAZIL?
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/profitable-investing-tips/why-would-you-want-to-invest-offshore-in-brazil
Not that long ago Brazil was touted
as one of the BRICs nations.

Along with Russia, India, and China
and it seemed destined to join the
ranks of the most developed and
prosperous economies within just a
decade or two.

Brazil was considered a model for
developing nations as employment
soared, poverty was reduced, and
safety net social programs helped
stabilize their society.

Then prices for oil and other
commodities collapsed.

Much of this had to do with China
importing less as well.

Nevertheless, Brazil was not
equipped to moderate its social
programs.

And, on top of that, investigators
uncovered corruption at the highest
levels of the socialist government.

And, Brazil entered an economic
decline rivaling that of the Great
Depression.

So, why would you want to invest
offshore in Brazil today?

70 Years of Crude Oil Prices

Source: Macro Trends
This graph of 70 years of oil prices
shows the fall from $111 oil in June of
2014 to oil selling for less than $40
by the end of the year.

As income from oil and other
commodity exports fell, Brazil’s
economy went into decline from
which it is just now starting to
recover.

The reason to consider investment in
Brazil today has to with the new
conservative government.

It will be friendlier to and more
closely allied with the USA, and more
open for foreign investment.

US Relations with Brazil

Senator Marco Rubio wrote a piece
published on the CNN website.

Rubio says the US should go big on
Brazil.

On New Year’s Day, President Jair
Bolsonaro was inaugurated in Brazil,
ushering in a new era in Brazilian
politics that marks a dramatic
departure from the leftist, anti-
American governments of Luiz Inácio
Lula da Silva and Dilma Rousseff.

The new Bolsonaro government has
already indicated it seeks an even
closer security and economic
relationship with the United States.

The senator notes that closer
cooperation in areas from space
exploration to protection of
intellectual property rights are
already in the works.

Foreign direct investment is likely to
increase in Brazil as investors see a
government friendlier to foreign
investment.

Direct Foreign Investment
in Brazil

The World Bank tracks direct foreign
investment year by year and country
by country.

Brazil took a hit after commodities fell
in 2014 and the situation there was
compounded by social and political
turmoil.

Foreign Direct Investment in Brazil

Source: Deloitte
So, why would you want to invest
offshore in Brazil based on this data?

We have often commented that a
good investment strategy is to follow
the smart money.

Folks with billions of dollars to invest
have the resources to spot and take
advantage of emerging investment
opportunities.

Financial services and the food and
beverage industry are favorites of
many investors.

As the graph shows, direct foreign
investment bottomed out in 2018 and
is expected to rise in the coming
years.

How Could You Invest in
Brazil?

We assume that you do not have a
few billion dollars laying around for
investment purposes and that you
probably do not speak Portuguese or
have an English speaking stock
broker ready to pick up the phone in
São Paulo and place your orders on
the Bovespa stock exchange.

But, in order to invest in companies
in Brazil, you can buy American
Depositary Receipts in the USA.

These instruments trade in the USA
and level 3 ADRs are subject to the
same reporting requirement as US
companies.

Investopedia discusses American
Depositary Receipts.

American Depositary Receipts
(ADRs) are stocks that trade in the
U.S. but represent a specified
number of shares in a foreign
corporation.

Like regular stocks, ADRs are bought
and sold on U.S. markets.

They also trade in U.S. dollars and
clear through U.S. settlement
systems allowing ADR investors to
avoid transacting in a foreign
currency.

The advantages of ADRs are twofold.

For individuals, ADRs are an easy
and cost-effective way to buy shares
in a foreign company.

They save money by reducing
administrative costs and avoiding
foreign taxes on each transaction.

Foreign entities like ADRs because
they allow non-U.S. companies to
gain more U.S. exposure, allowing
them to tap into the wealthy U.S.
equities markets.

There are companies in Brazil that
list as ADRs on US exchanges.

You can find a complete list of
Brazilian
ADRs at TopForeignStocks.com.

Twenty-eight of these are listed on
the New York Stock Exchange and
are subject to NYSE financial
disclosure requirements.

There are also 45 that trade over the
counter and provide less financial
information.

The stocks in the NYSE list include
the aerospace and defense
company, Embraer, several large
banks, a number of electric
companies in a country where
hydroelectric power is dominant, and
Petroleo Brasileiro-Petrobras, the
Brazilian oil and gas giant.

The trick will be to determine which
of these will be the most likely to
prosper as Brazil’s economy
improves.

Using the financial information
provided for level 3 ADRs, investors
will be able to do their
own fundamental analysis of these
stocks.

Investment in Brazil and
Monetary Exchange Rates

If you do not invest directly in Brazil
you will not need to convert US
dollars to the Brazilian real (currently
= 27 cents).

However, the valuation of ADRs will
be affected by the exchange rate.

As a point of reference, a real was
worth 44 cents before oil took a
nosedive in 2014 and has been as
low as 24 cents.

As such the currency seems to have
bottomed out and will likely
appreciate in value versus the dollar
as US interest rates level off and the
Brazilian economy surges.

Brazil Selling Off Assets of
State Owned Companies

An interesting bit of news from
NASDAQ is that in order to reduce
their national debt, Brazil is looking at
selling assets of several of its state-
owned companies.

These include subsidiaries of the
state oil company, banks, and
insurance companies.

Those interested in investing in Brazil
during its economic recovery may
want to watch this story as they
search for buying opportunities.

Why Would You Want to Invest Offshore in Brazil?

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Why Would You Want to Invest Offshore in Brazil?