Spread Betting by Vince Stanzione

One thing I like about Brazil is its stable government; President Lula da Silva has an 80 per cent approval rating, has been a major force in pulling many out of poverty and has built up a Brazilian middle class, which is good for the economy. He has established a business environment that is friendly to foreign investors and built good relationships with nations that matter, such as China.

Furthermore, Brazil is rich in oil and the state still owns the majority of Petrobras (NYSE: PBR), which owns the Tupi Oilfield, one of the largest new discoveries in recent years. The president has also stated that he is not interested in exporting oil but would rather export higher-margin oil derivatives.

Other Brazilian resource companies include mining giant Companhia Vale do Rio Doce (RIO), a leader in copper, steel, coal, potassium and nickel. Steel producer Gerdau (GGB) and sugar/ethanol producer Cosan (CZZ) should all benefit from the rise in commodity prices in the coming years. Cosan is up 180 per cent since the last update in April thanks to strong sugar prices.

National assets
Although world food prices are off their highs they remain nearly 30 per cent to 50 per cent above their decade averages. Agriculture comprises approximately 8 per cent of the nation’s GDP and employs nearly one-fifth of the workforce. Brazil is not just growing food but also processing it. The country is the second-leading supplier of poultry in the world, accounting for 38 per cent of the market, just behind the USA, and I expect it to be number one within a few years.  

Brazilian banks are generally intact as their balance sheets are free of toxic assets. Since my last update Brazilian banks have rallied sharply and I continue to like Itau Unibanco (NYSE: ITUB), which is now the largest bank in Brazil.

Since April, the ishares Brazil exchange-traded fund (EWZ) has risen by 90 per cent, so it is not as cheap as it was. However, we are still around 30 per cent off the 2008 high, and longer term I look for Brazil to recover back to this level and beyond.

Correction due
I am pleasantly surprised how smoothly this has gone up, with few pullbacks. However, at some stage we will no doubt have a 10 to 20 per cent correction that will shake out some of the recent hot money and weak hands, but that doesn’t change the long-term uptrend.

We now also have the Small Cap ETF (NYSE: BRF), which allows you to invest in smaller companies focused on the domestic market and, unlike EWZ, doesn’t have the big oil weighting. Stocks here include department store Lojas Renner and construction company Gafisa. Other ways to trade include covered warrants offered by RBS Markets and Lyxor’s ETF listed in the UK (LBRZ).

I am also bullish on telecom stocks including Brasil Telecom (NYSE: BRP) and Vivo Partipaticoe SA (NYSE: VIV), the largest mobile phone service provider in South America, with over 40 million users. The company was formed from a joint venture with Telefónica and Portugal Telecom, which leads me nicely to the next stock I have been buying, Telefónica (NYSE: TEF or TEF.MC). You can easily spread bet either the US or Madrid listing.

One of the world’s largest telecommunications companies by market cap, Telefónica owns the O2 mobile company covering the UK and Europe. Telefónica’s activities are centered mainly on the fixed and mobile telephony businesses, while its broadband business is the key growth driver underpinning both. Operating in 25 countries, its customer base exceeds 260 million globally, and its growth strategy is focused on the markets in which it has a strong foothold: Spain, Europe and Latin America.

TEF (US listed ADR) is currently trading at $84 and I am looking for a move back above $100.

Vince Stanzione has produced a home-study course to teach private investors how to benefit from trading financial spread bets and fixed odds. For more details, visit www.fintrader.net