If seeing is believing, natural resources and infrastructure opportunities abound in Brazil.
The above photo was snapped by our global strategist Jack Dzierwa at São Paulo’s Guarulhos International Airport as he spent hours trying to board a domestic flight to Rio de Janeiro. Not surprisingly, he didn’t make the flight.
Jack has traveled extensively around the world, and he says he’s never seen anything like the hectic scene at Guarulhos, which just can’t service the rapidly growing number of Brazilians who can now afford to travel by air.
Scenes like this are important for investment managers to experience in order to grasp the significance of what’s taking place in emerging countries like Brazil. You just can’t get the full flavor of the chaos at Guarulhos from an economic data spreadsheet or a research report.
Jack traveled to Brazil to collect some insight on the country’s infrastructure development and the best prospects for investment. His experience at the airport gives him tacit knowledge and a clear understanding that Brazil will have to expand on its domestic infrastructure.
Brian Hicks, who co-manages our Global Resources Fund (PSPFX), has also spent the week in Brazil – he has been doing research and meeting with natural resources companies.
Brazil is a key driver for natural resources and infrastructure markets. It is home to 190 million people, many of them moving into the middle class, and it’s also one of the world’s fastest-growing economies.
Similar to China, this rise of the middle class will increase demand for oil and other commodities, and its expansion will put growing pressure on the country’s inadequate infrastructure.
Just a couple of weeks ago, a blackout left nearly 60 million people without electricity and another 7 million without water. Traffic in downtown São Paulo is so bad that many businessmen use helicopters as taxis to get around the city. Brazil only has three main international airports, despite that it has 14 cities with at least 1 million residents.
The U.S. Energy Information Administration estimates that Brazil has more than 12 billion barrels of proven oil reserves. That number is certain to grow as we learn more about the large discoveries recently made off its southeastern coast. In addition to vast reserves of oil, it is also a leading producer of iron ore, aluminum, platinum and other industrial metals.
This natural wealth puts Brazil in an enviable position compared to some other large emerging economies. As the domestic demand for resources increases with infrastructure expansion, much of that demand can be met from internal sources. This benefits the economy on both ends and sets the stage for further economic growth.
Frank Holmes is CEO and chief investment officer at U.S. Global Investors, a boutique investment advisor specializing in natural resources and global emerging markets. The company manages the U.S. Global Investors World Precious Minerals Fund (UNWPX) and the U.S. Global Investors Gold and Precious Metals Fund (USERX). Read more insights from Frank Holmes and the U.S. Global Investors investment team at the investment blog “Frank Talk.”
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