This from Money Morning:

Brazil’s economy has been given a second chance. And so have prospective investors.

Brazil will use that second chance well – shouldn’t we?

Although there are a number of ways to play this promising “BRIC” (Brazil, Russia, India and China) market, including some excellent companies, the best way to capitalize on Brazil’s terrific prospects is through the iShares MSCI Brazil Index (NYSE: EWZ).

Brazil’s Shrewd Game Plan for the Current Financial Crisis

Vale (ADR NYSE: RIO), formerly known as Companhia Vale Rio Doce, is the largest exporter of iron ore in the world. It has thrived and continued to expand production of this critical resource, supplying China, Japan, Europe and other major global steel-making operations.  The story behind Petrobras Energia Participaciones SA (ADR NYSE: PZE) is even more impressive: After decades of government initiatives focusing on oil self-sufficiency – which includes deep-sea drilling and the now-vaunted sugar-cane ethanol program – Brazil achieved that goal last year. Now, with the biggest oil discoveries in the world in decades, Brazil is well on its way to becoming an oil superpower.

As President Lula said, “God has given Brazil one more chance.”

And us, as well.

Late last week, Brazil’s hopelessly mismanaged neighbor, Argentina, had to seize its privatized pension fund money in order to meet its fiscal obligations. We’re also watching as Hungary, Belarus and the Ukraine approach the International Monetary Fund (IMF) for help.  This directly contrasts with Brazil, which has amassed $200 billion in foreign reserves, having become a net creditor of the world.

So, in this crisis, both the Central Bank of Brazil and the Brazilian government have acted very quickly to backstop the liquidity effects against their banks.  The Central Bank of Brazil has been continuously superbly managed, despite changing administrations: and is very experienced in crisis management. It is currently managed by Henrique Meirelles, a highly experienced and greatly respected international banker. Meirelles has operated in the tradition of Brazil’s inflation-fighting central-banking pioneer Gustavo Franco.  Franco was one of the economic advisers who put together the Plano Real, which brought Brazilian inflation down dramatically under former President Fernando Henrique Cardoso. Franco was followed at the Central Bank by Arminio Fraga, formerly associated with George Soros in the Quantum Fund, and finally by Meirelles, who was formerly with Fleet Bank.

It’s important to note that the Lula administration has many officials who have previously held senior positions with major international banks.  This is a clear indication of professionalism, transparency and commitment to serious macroeconomic and monetary policy management.  No more “brincadeira” – playing around.

President Lula went on to say that the government will buy bank stakes in order to shield its financial institutions from the global crisis.  This is happening today, as the government’s largest banks have been authorized to buy stakes in Brazilian banks.  Much like the U.S. Federal Reserve has done in here in the United States, the Brazilian Central Bank also has been authorized to enter into swap operations with other central banks in order to restore liquidity to the Real, which has been under pressure.

To add further liquidity, the Brazilian Central Bank has reduced minimum reserve requirements for the banks, extended an almost $2 billion line to the banking system to finance exporters and injected some $71 billion to ease liquidity.  The Central Bank explicitly requires the banks to lend the money and monitors closely their activities to prevent them from instead using the capital to buy – and sit on – government bonds.

The Brazilian Central Bank also has had to resort to selling only about $23 billion of its more than $200 billion in total reserves, in order to cushion the decline of the Brazilian Real. The upshot: Brazil today operates from a position of macroeconomic strength, like China, India and Russia.

And the Central Bank has stimulated housing by easing liquidity requirements and encouraging banks to lend more.  This policy will soon gather more strength. Similarly, the government banks, rather than international investors, are the most likely to finance a huge electricity project coming for bid. And Brazil’s plans for a major infrastructure build-up should not have problems obtaining financing.

For example, Petrobras should easily be able to finance the estimated $163 billion needed over five years to continue developing its ambitious mega-oil project out of its own cash flow, government and bank financing and profit-sharing arrangements where it chooses.   Vale and other major exporters should likewise have little difficulty in moving forward. These companies, like the government, are committed to continuing with their long-term investment plans, despite the current problems.

Nor have Brazil’s market-supporting measures stopped there. Brazil has required all companies to report their derivatives positions and even to estimate future potential losses under certain scenarios on a quarterly basis, starting immediately.  This will greatly increase transparency, dispel fears and increase confidence.  Some companies saw their currency derivatives positions get hit hard in the recent sell-off.  But these hits, which in some notable cases wiped out the quarter’s profits, are a one-time effect, so it represents a buying opportunity in those stocks.

Finally, the Brazilian banking system is sound, with strong capitalization and low delinquencies.  Credit expansion has been strong in the recent years, but not overdone.  And banks like Spain’s Banco Santander SA (ADR NYSE: STD), government banks and others are taking advantage of the crisis to buy loan portfolios from their weaker rivals, as has been the case in most liquidity crunches in emerging markets.

The critics will refer to this crisis as the first major test for Lula.  And many doubt whether he will resist the temptation to throw monetary and fiscal prudence out the window.  But Brazil, as has been seen for decades, is much more than just Lula.  Its technocratic administration and central bank have decades of experience in crisis management. Brazil’s strong local companies, which are world leaders in many industries, and committed investors, including major multinational companies, are heavily vested in the country’s success.

Going for Growth

As the Brazilian government has done in the past, I expect it to stay the course for the long term, to maintain its inflation-targeting discipline (as the Central Bank recently announced), and stimulate its economy as inflation drops markedly. That will keep Brazil in the running to be one the engines of growth in the world for the next couple of decades.

As we’ve seen, the country’s prudent monetary and fiscal policies, coupled with its solid macroeconomic position, strong reserve position, and controlled inflation will lead to good growth. Gross domestic product  (GDP) is expected advance at a rate of between 4% and 5% next year. And since only 13% of GDP comes from exports, Brazil will have lots of room to maneuver.  The slowdown in the advanced economies will give Brazil – as well as India, Russia and other emerging economies – room to start cutting domestic rates as inflation abates, just as China is doing right now.

In China, savings are 10% of GDP more than investment, so a slowdown in foreign capital inflow to China is a blessing, since it will allow the Beijing government to deploy its own capital to work and increase China’s internally driven growth as opposed to export-driven growth.  The same phenomenon will be pervasive throughout the emerging markets that – like Brazil, India and China – have not squandered their newly found wealth.

Hence, at the current prices, Brazil is – if you’ll pardon the Wall Street slang – a “screaming buy.”  In fact, as we speak, foreign investors are flying in droves to Brazil to buy beachfront property at a discount.  Prices of financial and real assets have been hit by excessive fears of a Global Depression.  When you see that G7 nations have injected more than $3 trillion into their economies in order to backstop the credit crunch, and another economic stimulus plan in the United States is almost a given, you have to realize that this will have an enormous positive impact on the fragile global market situation we are seeing today.  As the credit markets thaw out, despite ongoing hedge fund de-leveraging, we will see renewed waves of buying and Brazilian financial assets will be amongst the biggest winners.  Do not be left to watch from the sidelines as I once was.

Recommendation: Buy iShares MSCI Brazil Index (NYSE: EWZ) in increasing increments over the next eight weeks.  This means that you will be increasing the amount of money deployed every week, until you’ve invested the total amount that you’ve set aside for this ETF purchase, just before the year comes to the end of the year.

PS. This is a cut version of Horacio’s popular ‘Buy, Sell or Hold’ column, published every Monday on Money Morning. For a more in-depth report on Brazil, follow the link below.

Source: Buy, Sell or Hold: iShares MSCI Brazil Index

Plunging oil prices and currencies, combined with tight credit markets, have formed a fiscal hurricane sweeping through Mexico, Venezuela, Brazil and Argentina.

Although oil prices rebounded 17% yesterday, a barrel of crude is down 45% from its record high of $147.27 in July.

Many Latin American countries prospered with rising oil prices. They are now in the throes of a crisis that obliterates any oil-premium safeguards for investors — at least for the near-term.

Petro-fascist Hugo Chavez of Venezuela lost some of his bluster.

Venezuela is one of the biggest oil exporters to the US. However, American consumption has been sliding along with the overall U.S economy. The January-April 2008 numbers show a 2.5% drop to 140,000 barrels from all of 2007.

Chavez has cut oil export deals with China and Russia. But it’s too soon to tell how much is flowing to those countries.

Still, if you were in Venezuela’s Caracas stock market you probably didn’t do too horrible compared with the rest of Latin America. It’s down 5.17% over the past three months.

Investors in Brazil’s Bovespa stock market, however, did much worse. It’s down nearly 41% during the past three months — perhaps one of the biggest surprises in Latin American economies.

Fitch Ratings forecast Brazil’s economy to grow by 3.3% next year, down from an earlier prediction of 5.1 percent.

With its rapid drop, the Bovespa certainly did some severe damage to investors caught in the downdraft. But the real question to ask is whether or not it’s time to get back in at today’s discounted prices.

Brazil is among the top energy independent countries in the world, both of fossil fuels and bio-fuels. This shields it from some of the inflationary pressures racking more import-dependent countries.

Also, Brazil’s banks haven’t been ravaged by the mortgage meltdown.

The Bovespa took a hit for two reasons: 1) an overall flight to safety and 2) a related loss of confidence in an oil-producing economy.

How much lower the Bovespa will drop is anyone’s guess. But if you have guts, it may be worth a look.

When it comes to Argentina, investors can still hear the screams from the massive default of 2001. Argentina needs about $12 billion in cash to make it through next year and no one is quite sure where that money will come from.

At least, until recently, Argentina could bank on rising oil prices.

The general lack of confidence in Argentina is clearly reflected it’s stock market, the Argmerv, which is down 37.2% in three months.

Meanwhile, Mexico is getting a double-whammy with big hits to the peso and oil. The Mexican IPC index slumped 28.6% during the last three months. It seems that many investors came up on the wrong side of currency trades.

Of all the Latin American oil producers, Mexico is in pretty good shape. It has low debt and big reserves. Given its trade status with the US, it could be one of the earliest beneficiaries of a US turnaround.

Since the beginning of 2008, six analysts have downgraded the Mexican cement giant, Cemex (NYSE: CX). Today, Citigroup (NYSE: C) became the latest to lower its outlook.

None of the downgrades were an outright sell. Instead, they went from buy or overweight to hold or neutral.

In this take-no-prisoners market, Cemex is an obvious target. As goes the worldwide housing sector, so goes Cemex. But is that any reason for the stock to plunge to a 52-week low of $7.90 from $33.40?

We don’t think so.

Cemex is a major player. The company has operations in more than 50 countries that produce 96 million metric tons of cement annually. Cemex is has become one of the largest cement companies in the world. Consider it the IBM of cement.

Now with some recent news, Cemex could be poised for a rebound.

For starters, Mexican president Felipe Calderón unveiled plans for $4.35 billion in emergency spending on infrastructure next year.

Unlike the Bush administration, whose trickle-down economics favors handouts to the wealthy, Calderón is following in the footsteps of President Franklin D. Roosevelt’s New Deal, which created public-works jobs for ordinary Americans.

Calderón’s $4.35 billion infrastructure build-out is slated to begin in 2009, pending approval by Mexico’s congress.

It would be used to build infrastructure projects such as bridges and highways that “will bring direct social benefits to millions of Mexicans and help keep our economy on track,” Calderón said.

In its 3Q guidance issued on September 11, Cemex noted that the “infrastructure sector continues to be affected by a delay in project starts, which are expected to pick up in the last quarter of 2008.”

Still, the company’s bread-and-butter is the residential market, which has also come to near stand-still in Mexico.

Cemex’s 3Q guidance also forecast domestic cement and ready-mix sales volumes in Mexico to decrease by about 3% and 1% respectively, versus the comparable period last year — a bad hit but far from crippling.

Overall, 3Q sales are expected to be about $5.9 billion flat on a like-to-like basis, versus the same period last year. Revenue should be approximately $17.6 billion, a 2% increase in the same period.

To put that guidance into perspective, let’s look back to 2Q and 1Q of this year.

For 2Q, net sales increased 29% to $6.3 billion, versus $4.9 billion in the comparable period in 2007.

1Q looked particularly good. Net sales rose 26% to $5.4 billion over the comparable period in 2007.

Watch Cemex. As soon as the stock creeps back up, it may be a great contrarian buy.

This from Penny Sleuth:

John Sutcliffe, is a Yorkshireman. A lifetime spent thousands of miles away from his beloved Wharfedale in the Yorkshire Dales has weathered his bearded face but not quite disguised his accent, or the blunt opinions for which his native county is famous. ‘The oil industry,’ he told me, ‘is made for idiots.’ Once the drill bit hits oil, he explained, you leave the rig exactly where it is and just start pumping for all you are worth.

Not so in mining…

It’s as much who you know as what you know

Finding metal is only a step along the way. Before you can actually get it out of the ground you need a mining permit, a feasibility study, and all the necessary equipment. And by the time you are ready to actually dig the stuff out of the ground the price of the metal could be anything. So you have to cut deals. You have to raise cash amongst your friends and contacts. You have to bring in partners. You have to get all the local officials on-side. You need to hang out in the right places and meet the right people. It’s as much who you know as what you know.

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So, sixty-two year old John Sutcliffe should have the edge over twenty-eight year old Jeremy Martin. Jeremy does not have a grey beard or a weathered face. Smart in a suit and tie he looks more like a young banker than someone whose idea of fun is hacking away at rocky outcrops in the hills of Peru.

Inevitably he lacks the self-confidence of John, who already has discovered several major mines in his career and knows that he can do it again. John told me how Mariana Resources (LON:MARL), his AIM-listed company, was born.

‘I met a couple of my old University mates at a conference in Toronto. Over a few beers we decided to start a new company. We raised some money from people we knew in Australia and then got some properties together.’

A little credibility goes a long way

You can do that when you have won your credibility. But Jeremy still has it all to prove. Having plunged into South America with little more to sustain him than a stint at the Camborne School of Mines and a degree from the University of Leicester he founded Horizonte Minerals, he gave me a measured account of its strategy.

He insisted that he had no scatter-gun approach to exploration. His project criteria are well-defined and work proceeds in a controlled manner. He wants to take projects to the stage where the resources are proven and a bigger company can be found to bear the expense of setting up a mine. Horizonte is sticking to established mining areas and to the large license areas that attract bigger players.

Horizonte (LON:HZM) and Mariana have a similar stock market history. Both were listed on AIM in May 2006. Then Horizonte sold shares at 30p. Today the price is 11p, valuing the company at £4m. Mariana sold shares at 20p. Today they trade at 5p, so Mariana is valued at about £3m.

Horizonte has projects in Brazil and Peru; Mariana in Argentina and Chile. Both have been through the time-consuming and sometimes frustrating process of exploration – studying satellite photographs, taking rock and soil and water samples, digging trenches and making small drill holes. And both have been frustrated that investors seem unable to recognise the value of all this work.

A $60m drilling success?

Now, though, they are both hoping for a change of fortune, and Horizonte seems to have the stronger case. Last week it announced that the first eighteen of sixty wells to be drilled at its Lontra nickel project in Brazil had encountered significant grades of nickel.

If the remainder of this drilling programme comes up with similar results then Jeremy Martin reckons it could conservatively be worth $60m to Horizonte. On top of this it has already brought Australian miner Troy Resources into its Brazilian gold project and if Troy decides to take the mine into production then Horizonte stands to receive a $2m cash payment and $15m of royalties.

For Mariana the story is a little different. It is yet to announce a significant discovery, although this could be about to change with drilling programs scheduled later this year at a copper project in Chile and at the Sierra Blanca property in the Argentinian province of Patagonia.

But John Sutcliffe has something else up his sleeve that could give Mariana’s share price a boost. He has been calling on all those contacts of his. People who have known him for years and accept his judgement. Some of them, he thinks, might like to buy their way into Mariana’s projects.

He reckons that he could cut a deal that would show just how undervalued are Mariana’s shares. The question for Jeremy Martin, as he tries to exploit Lontra for the maximum benefit of Horizonte’s shareholders is – can he do the same?

Source: The Old Miner and the Young Miner

When it comes to energy, Mexico could benefit from growing tensions between the U.S. and the world’s biggest natural gas supplier, Russia. Overall, unrest in many oil-producing countries around the world makes Mexico a relatively stable provider of crude and natural gas.

Mexico is the world’s sixth largest oil producer and a major exporter to the U.S. Oil revenue is one of the country’s top sources of foreign currencies.

Of course, no oil provider is immune to the recent decline of a barrel of oil. When the hurricanes blow off into oblivion, chances are the reduced consumption of oil worldwide could keep prices in a slide.

Moreover, Mexico’s offshore oil production has been in decline this year, affecting its crucial export revenues.

At the same time, relatively high yields on Mexican debt compared to U.S. Treasuries are attractive to investors.

Mexico’s central bank continues to tighten borrowing costs, setting its key interest rate to 8.25% and pushing the spread between Mexican and U.S. benchmark overnight rates to 6.25 percentage points, the widest since late 2005.

The high interest rates and the U.S. shakeout of the banking sector have reinforced confidence in the peso. The thinking is that as Lehman Brothers (NYSE:LEH) and Merrill Lynch (NYSE:MER) get crushed, the silver lining here is that the world markets are actually taking a step closer to stability — at least that’s the bullish take on the catastrophes.

If that’s the case, U.S. interest rates could start to decline again, making the yield on Mexican bonds even more attractive.

Along with competitor Telefonica SA in Argentina, the iPhone 3G has amassed a backlog of 50,000 eager consumers. The Mexico City-based America Movil began selling the sizzling gizmo in Mexico on July 11 — contributing to this enormous backlog in a matter of days. Now the company is engaged in a regional rollout that may restore the stock its previous luster.

America Movil recently rolled out the iPhone 3G Argentina, Chile, Colombia, Peru and six other countries. The numbers have not come out yet, but we believe the potential is strong — making the company a potential long-term play.

America Movil has only risen 1.4% since the July 11th Latin debut of the iPhone 3G. But the company has outperformed the Mexican Stock Exchange’s IPC index of leading issues, which declined 5.58% during the same period. However, over the past five years the stock has skyrocketed 616%.

Currently, with stock trading just south of $50.00, the price remains on the low end of its 52-week range of $47.08 and $69.15. But that could easily change for the better.

“As from 2010…a possible reduction in the cost of handsets will provide the value added services (VAS) offering with a new dynamic in the region’s most developed markets: Argentina, Brazil, Mexico and Venezuela,” Argentina-based Signals Telecom Consulting told the Latin Business Chronicle on August 18th.

As a result, 3G service revenues should reach more than $5 billion in 2010 and jump to $36 billion in 2013, Signals forecasts. That compares with less than a $1 billion today.

Argentina, Uruguay and El Salvador have Latin America’s highest wireless penetration rates, so products like the iPhone will help operators get new business from existing clients, reported the Latin Business Chronicle.

America Movil is ideally positioned to cash in the market forces driving wireless communications in Latin America. As of As of December 31, 2007, the company had approximately 153.4 million subscribers in Mexico, Brazil, Argentina, Paraguay, Uruguay, Chile, Colombia, Ecuador, Peru, Guatemala, El Salvador, Nicaragua, Panama, the Caribbean, the United States, Puerto Rico, the U.S. Virgin Islands, and Jamaica.

The potential of America Movil follows the pattern of our so-called Cell Phone Index that we wrote about here on August 22, 2008.

As emerging economies come into their own, one of the first improvements you’ll see is a new communications system.

We reported that the biggest growth of emerging-market cell phones was seen in Latin America where sales increased 28.4% compared with Q1 2007.

Given the pent up demand for the iPhone 3G in Latin America, we have every reason to believe that America Movil could rebound to it’s previous 52-week high over the coming 12 months.

But you need to tread carefully, says Sara Nunnally in Taipan’s Emerging Markets blog. Although there is a bunch of so-called “frontier ETFs” out there to chose from, not all of them make good investments.

If ETFs are your thing, stick to those focused on the Middle East and North Africa, says Sara…

Looks like the world is becoming more focused on frontier markets in Africa and the Middle East. Several new ETFs have popped up, making access to these markets so much easier for US investors.

They are Vectors Gulf States ETF (MES:NYSE), the Market Vectors Africa ETF (AFK:NYSE), the PowerShares MENA Frontier Countries ETF (PMNA:Nasdaq) and Claymore’s Frontier Markets ETF (FRN:NYSE). (Note: The FRN includes investments in a number of other frontier markets, including Latin American and Eastern European countries.)

But just because they give you access to new markets doesn’t necessarily mean they’re great bets…

There are good economic factors out there, and great growth statistics for a number of nations in this region, but keep in mind that these countries are starting from ground zero. We’re talking very little infrastructure and fledgling economies. And a whole lot of social and political unrest in many areas makes for a risky and unstable environment.

In my opinion, I think these ETFs will garner a lot of interest, but investors might do better looking at specific economies or sectors and cherry-picking their opportunities.

That might mean doing a heck of a lot more research, and possibly buying an asset on a foreign exchange, so this type of frontier investing isn’t for everyone. That said, a number of MENA (Middle East/North Africa) and Gulf State countries are listed on major European exchanges, like London, Paris, and on many exchanges in Germany. That should calm some investor fears.

In my opinion, investors should focus more on the following countries for opportunities: Morocco, Kenya, Israel, UAE, Oman, Kuwait and Qatar. Finance, construction, and telecommunications seem to be the top three sectors these ETFs are focused on, aside from energy and commodities, that is.

Egypt is another good option, but there seems to be a bit of concern over food prices and political and religious policy. Nigeria would be an amazing place for investors if it would get its act together, but for now is a no go zone because of all the corruption and terrorist activity.

If anyone is interested in jumping into these ETFs, I think the ones focused on the Middle East and/or North Africa would be a better bet. That’s the PowerShares MENA Frontier Countries ETF (NASDAQ:PMNA) and the Market Vectors Gulf States ETF (NYSE:MES).

Source: Frontier Markets Big on the Radar Screen