Tips for Investing with Latin America

The emerging markets remain a key area for growth investors. In Latin America, risk investors will discover that there’s good potential there when it comes to investing, thanks to its close proximity and trading relations with the United States.

 A region that I like is Brazil. With a population of about 188 million, it is the fifth most populated country in the world, and it also has good growth prospects. The country’s key Sao Paulo Stock Exchange’s Bovespa index traded at an all-time high of 58,293 on July 19, 2007, which is up over 71% from its 52-week low. Compare this to the returns you are currently getting in the U.S. markets, and you should clearly understand the need to geographically diversify your assets.

Brazil has been experiencing improving economic fundamentals and recently cut its benchmark interest rate by 50 basis points to 11.50%. This higher rate creates a differential between Brazilian assets and what you can earn elsewhere, thus it attracts foreign capital, which has helped prop up Brazil. So, while the rate is high, there is a reason for it. Investing in Brazil involves higher risk than does investing in U.S. or Canadian securities.

 The country, formerly under Portuguese rule for three centuries, became independent in 1822 and gained status as a republic in 1889. Brazil has developed into a dominant economic power in South America. The country’s economy is driven by solid agricultural, mining, manufacturing, and service sectors. However, Brazil is vulnerable. In 2001 and 2002, the Brazilian Real collapsed; since then, the country has restructured its financial system and has noted record trade surpluses in the period from 2003 to 2005.

 While the situation has improved, some risks still remain when it comes to investing in Brazil. The government’s domestic and foreign debt is large, and it poses a threat to the financial structure of the country. Income inequality is also a problem that’s hindering Brazil. In addition, credit market concerns in the U.S. could hamper investments.

 If you want to invest in Brazil, or any other Latin American country, you may want to do so via mutual funds or ETFs in order to help minimize the risk.