Money Games Information

This is not an article for large institutional investors but for individual investors like you and me. If you are a large institutional investor, you are probably familiar with ways to invest directly in other countries by now. If not, just get in contact with one of the global investment banks like Morgan Stanley, Merrill Lynch, UBS or Credit Suisse, which have operations in Brazil and can set up an institutional investor account for you pretty easily. However, if you are planning to invest less than US$1 million, these accounts are probably too expensive and complicated for this volume and you may benefit from this article as well.

Photo: daylife.com

Also, this article focus on investors that are not Brazilians or not legally residents in Brazil. If you are Brazilian or residing in Brazil, all you have to do is go to your bank and open a brokerage account. However, as a foreigner, you cannot open a bank account in Brazil. So we will try to facilitate things a little and come up with alternatives using accounts in the United States, which you can use whether or not you are living there.

As a first option, there are currently 35 share certificates of Brazilian companies listed and traded in the New York exchange (and 1 in NASDAQ). These Brazilian certificates are called Depository Receipts (DRs) and are quoted in U.S. dollars. If you already have a brokerage account in the U.S. or in any other country that allow you to buy shares listed in the New York Stock Exchange (NYSE), you can buy these DRs just like any other share.

Brazilian companies that have shares listed in the NYSE are some of the largest companies in Brazil. You can find companies like Vale (RIO & RIO-P, top 3 mining company in the world), Petrobras (PBR & PBR/A, top 10 oil company in the world), Embraer (ERJ, top 4 aircraft manufacture in the world) and many other companies involved in natural resources (VCP, ARA), steel (SID, GGB), food (PDA, SDA), financial services (BBD, ITU, UBB), utilities (ELP, CIG, CPL, SBS), telecom (BRP, TSP, TSU, TNE), airlines (GOL, TAM), real estate (GFA), consumer and retail (ABV, CBD), etc. If you want a list of all Brazilian companies listed as DRs in the U.S. exchanges, you can go to Bank of America’s website and search their DR page (or google "bny adr" to find the right page).

A few other companies that operate in Brazil have decided to list shares directly in the United Stated (not as DRs, but as shares). Usually these companies have headquarters outside of Brazil, but all or most of their operations in Brazil. One example is Cosan, one of the largest sugar and ethanol companies in the world, which has an operating company listed in Brazil but also a Bermuda-based holding company listed in the NYSE (CZZ).

You can use the 3-letter symbols above (like RIO or PBR for example) to search for information on these companies in the S.E.C., Yahoo Finance or other financial websites. These are the same symbols you would enter in an online broker website to buy one of these DRs in the New York Stock Exchange.

If you don’t want to invest in a specific company, but would rather invest if a group of companies for diversification, there are two easy options for you to do that. The first option is to look for a stock mutual fund that invests in Brazil. Some of the largest banks and asset management companies offer Brazil-specific funds in the U.S. and Europe, like ABNAmro, HSBC and others. Just ask your bank or look it up in the internet. Some institutions tough only offer Latin American funds and they will try to convince you that these funds are better because they offer more diversification. Better or not, that will depend on your objectives. A Latin American fund will usually have a significant percentage of investments in Mexico, which is an economy much more "correlated" (as in dependent) to the United States. If you are OK with that, a Latin American fund may be the right choice for you. But if you have enough of your assets in the U.S. (or industrial countries) and is seeking global diversification, you may be better off looking for one or more country-specific funds.

The second option may be a little easier if you already have a brokerage account. There is a stock fund listed and traded in the NYSE ("Exchange Traded Funds" or ETFs) that "mirrors" the MSCI Brazil Index, which is an index of Brazilian shares published by Morgan Stanley Capital International. It’s called iShares MSCI Brazil Index (EWZ). You buy its share when you want to invest and you sell if you want your money back. As of this date, if you buy a share of EWZ you would be investing the equivalent of 24% in Petrobras (oil), 21% in Vale (mining), 13% in Brazilian banks (Bradesco, Itau and Unibanco), 6% in steel companies (CSN and Gerdau) and 36% in other Brazilian companies. You can look for information on this fund, including their holdings, and buy its shares, just like you would look up or buy any other share in the NYSE: just write the symbol EWZ in Yahoo Finance or your broker’s online trading system. You can also find other iShares regional ETF funds, like for China and Australia.

This is not meant to be a comprehensive article about equity investment options for foreigners in Brazil, but it gives investors easy and interesting ways to invest in the country without too much hassle. But before you make any investment, do not forget to talk to your financial advisor and do your own homework.