Booming Brazil: The new China

There's much more to Brazil's agriculture than sugar cane, though, as its tropical climate allows for two growing seasons. The country has the world's largest amount of uncultivated arable land, and farmers, in league with Japanese and U.S. agribusiness leaders Cargill, Bunge (BG, news, msgs) and Monsanto (MON, news, msgs), are steadily moving into the western steppes to grow more soybeans, wheat and alfalfa, as well as graze the world's largest cattle herds to satisfy a growing world hunger for protein.

And the mining industry has exploded under the nearly monopolistic direction of Vale (RIO, news, msgs). Vale's shares have risen almost 1,700% since Silva took office and his finance team started selling the government's share of the company to the public. The second-largest mining concern in the world, Vale produces iron ore, nickel, copper, bauxite and aluminum, and runs nine hydroelectric plants to supply the world with raw materials.

• Video: Bullish on Brazil

Though Brazil has China beat with native sources of food and natural resources, its expensive currency and smaller population have stymied efforts to create much of a manufacturing sector. Brazilian industrial outfits such as steel maker Gerdau (GGB, news, msgs) have ventured overseas to buy and distribute high-grade metal plate, and Embraer (ERJ, news, msgs) has hawked commercial jets. But mainly due to high tariffs and bad luck, the only Brazilian goods you'll likely buy in the U.S. are cooking oil, carved wood and orange juice.

Awaiting more upgrades

The next step in Brazil's evolution as an economic superpower will come after credit analysis kingpins Moody's Investor Services (MCO, news, msgs) and Fitch Ratings follow Standard & Poor's and upgrade its debt. If that occurs as expected later this year, then many more fixed-income investors in Europe and the U.S. will be allowed, under current pension fund covenants, to buy Brazilian securities.

To be sure, Brazil is not perfect. Around a third of Brazilians live in poverty, and the median income of households badly trails that of Mexico and Chile. Yet economic growth around 4.7% and a sharp drop in inflation (which had topped 100% in the 1990s) have spurred growth in a middle class that is avidly buying wireless phones and refrigerators, traveling and going to college.

If you want to participate, you'll have to wait for a big dip to get started, as shares have really shot up lately. But then consider Vale, Petroleo Brasileiro, exchange-traded fund Brazil iShares (EWZ, news, msgs), banks Bradesco (BBD, news, msgs) and Banco Itaú Holding Financeira (ITU, news, msgs), steel makers Companhia Siderúrgica Nacional (SID, news, msgs) and Gerdau, and wood pulp provider Aracruz Celulose (ARA, news, msgs).

In short, Brazil is China without a totalitarian government, lack of water or natural resources, or Tibet problem. It's an emerging market with real hope of sustainability.

I'll have much more reporting on Brazil as a budding economic superpower over the rest of the year, so stay tuned.

Fine print

To learn more about Brazil, visit its government Web site; see photos here. Go here to learn about the International Monetary Fund. You can find out more about Silva here, Ortega here and Chávez here. Learn more about Gerdau here and about Aracruz here.

At the time of publication, Jon Markman owned or controlled shares of the following companies mentioned in this column: Companhia Siderúrgica Nacional, Vale, Gerdau, Petroleo Brasileiro and Aracruz Celulose.

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