Rant About It

Is South America the Answer ?

Posted by rantaboutit on January 26, 2007

With emerging markets grabbing investor attention, many are turning their focus towards South American markets. Strong exports, high commodity prices and increased investments have been contributing factors to growth within many of the Latin American markets. As a result, many companies are working to capitalize across a variety of sectors such as DVD manufacturer Infosmart Group, Inc. IFSG in the digital media and tech market, ZAP ZAAP and Rotoblock Corporation ROTB taking advantage of the growing demand for alternative and renewable transportation, as well as GoldenPeaks ResourcesLtd. GL and other mining companies pursuing resource plays within Argentina and surrounding areas. Lets take an example of Brazil to understand where does the South American market stand.

Tech & Media Market

Computer sales increased more than 20% in 2006.
This growth can be attributed to a variety of factors such as government incentives, a high level of Internet use and overall economic growth leading to increased consumer purchasing power.

DVD player market is also growing rapidly in Brazil. Brazil is one of the largest markets in the world with the population of over 180 million. Furthermore Brazilian people enjoy music and film, which leads to increasing sale of discs. This could benefit DVDR manufacturers like Infosmart Group, Inc. Somehow the local production has not been able to catchup with the growing demand, which has lead to increased imports especially from U.S. To get a big chunk of the pie Infosmart Group, Inc has decided to establish a production facility in Brazil. According to the company, the sales from their Brazil facility are expected to contribute approximately 40% of the group revenue.

Energy & Transportation Technology
45% of Brazil’s energy production comes from Renewable/alternative energy. This has made Brazil less dependent on foreign oil. Brazil is the world’s largest producer and exporter of sugar cane based ethanol. Ethanol from sugar cane has key benefits over corn based ethanol because it is more energy efficient and is easier to grow and process, thereby reducing overall costs.

Brazil’s automobile has upgraded to run on pure ethanol or gasoline-ethanol blend. California based alternative vehicles developer and distributor ZAP has teamed up with local company in Brazil called Obvio! to launch such cars in the U.S. market. Rotoblock Corp. has teamed up with Obvio! to provide advanced propulsion systems for the engines.

Mining Opportunities
Chile is the largest copper producer in the world and with copper prices rising so is Chile’s GDP. Argentina has abundance of natural resources and GDP growth of over 8% in the past few years. GoldCorp Inc GG, Golden Peaks Resources Ltd GL and Barrick Gold Corp ABX all have strong presence in Argentina and reaping-in most of the profits.

  • GoldCorp Inc. currently owns 37.5% of a gold and copper producing property in Argentina.
  • Golden Peaks Resources Ltd., an exploration and resource development company holds more than 385,000 acres of prospective land holdings in Argentina with main focus on gold projects.
  • The world’s leading gold company, Barrick Gold Corporation, has global operations that include various South American locations such as Peru, Chile and Argentina and plan to invest more than $1.5 billion.
Conclusion: Emerging markets can be volatile at times due to the region instability, terrorism and political risk factor. However strong demand across sectors such as renewable/alternative energy, technology, consumer electronics, digital media, mining and transportation provide good long term opportunity. Many speculate that with already drastic growth in emerging markets, the future might not be great. However the demand in emerging markets is still strong and with continued political and economic stability, emerging markets is still a good buy.

Recommendation: I recommend to look into companies that have presence in the emerging markets and not tied down only by US market. As discussed in this article, companies like IFSG, ZAAP, ROTB, GG, GL, ABX all hold good promise for the future with their presence in emerging markets.

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