Cabot's Dennis Wassung on the Brazilian Investing Environment

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All right welcome back the market's up a little that I thought we take a quick look at a couple of stocks that announced earnings it looks like Morgan Stanley is holding flat. Bank of America up seven a 32 cents today at seven dollars and twelve cents per share. That's up 4% rise in Bank of America share price. And I think seven dollars exact is exactly where Warren Buffett's warrants -- kick in member last fall he need be I believe a five or six billion dollar investment. In Bank of America preferred stock and I think it's convertible. At seven dollars per share we're joined now by Dennis wash sung from Cabot money management located in Salem Massachusetts Dennis are you don't today.

Doing very well over yourself.

Good good thanks for coming on and thanks for being willing to talk to us about investing in Brazil. You know like I read the -- the annual reports and remember last year is kind of a tough year for Brazilian investments was -- on.

It was actually indeed emerging markets in general had a very tough year in 2010 and you know -- a lot of times emerging markets are considered higher risk higher return. Asset class and with a lot of the global turmoil we've had we saw a lot of investor. Investment flows secure capital flows come out of the emerging markets in Brazil suffer from that last year. But the converse of that is with some of the improvements we've been seeing you're seeing some -- that investor. Excitement and interest come back this year and emerging markets are some of the best performing. Areas Brazil included -- year to -- 2012 sourcing and nice to have rebounded fuel and I think that's an interesting opportunity for 2012.

Let's talk about Tony twelve because you know eat you look at our. Domestic anticipated growth. Of the American economy and I think -- Dennis if you and hired a calculated we probably would come up with an estimate somewhere between. Two and 3% rate would be happy thrilled with those 3%. -- what is the anticipated. GDP your growth rate of the Brazilian economy in 22.

Source so on a real GDP growth of gross domestic product basis. -- well the expectations are about 3.4 3.5 percent that's real GDP is the -- and inflation of about. Expected to be about five and half percent you're looking at posted at 9%. GDP growth in three and a half percent on a real basis that sounds like China that. Absolutely and that's the way to think about it because. Brazil and China actually linked in a lot of ways. And Brazil export a lot of their product is lot of natural resources -- fill -- the big part of their economy in Brazil as the consumer of their products so there linked economically. Beat -- up some very strong growth here in 2010 with seven and a half percent. Real GDP growth. Declined lectured about 3% but. What suggesting here -- you're seeing. Expectations for re acceleration in Brazil this year and we saw that. Even in Q4 so that the Brazilian economy was about flat and a real GDP basing Q3. But it's improving care so at least -- improve. You're also seeing inflation come down. -- About 7% a few months ago it down in the the -- six is now heading toward between five and six for the next couple of years. You also have interest rates coming down so it's more accommodative environment and a strong retail -- at the very interesting opportunities.

I -- red last year that Brazil is making a concerted effort to provide electricity. To you know large parts of the country that have never had electricity is that continuing in that have they had success. With that our program of bringing electricity to some of the you know -- it there's millions of people that don't leaving it counted in the population of -- Brazil the Indian population.

Yeah you're right the -- there's that there's still an infrastructure. Gap if you will they're they're continued to via an effort to to put things like electricity and just broader infrastructure. In place across the country they've done a great job and I think they're much further along in places like India. And but I think there's opportunity for that ago now of course for years -- infrastructure investment continue to be a big driver in their economy is well.

As a political thing is it politically stable over there if they do is it. It is is there any risk of say you know of our revolution our and I think -- were having in Mexico.

I don't think we're gonna see that I think the government has done an excellent job in terms of keeping things -- that would. Think that would because revelations that to a minimum so for example unemployment is at a record low country. It's gone from caught 11% rate. Eleven or 12% back in 121003 it has about 6% right now it's at a record low. You got the middle class that is rapidly expanding this is the key investment points or investing in Brazil. You've seen the middle class expand very rapidly so. In 2003. Only 39% of the population lives in what they call the middle class. A class -- That is now 55%. And rapidly expanding. Expected to be north of that yeah for the next couple years so if more people with incomes getting jobs moving to the cities and generating more economic growth. But they seem so when you look at investment opportunities you. If you wanna try to take advantage of that growing economy and more people that just sitting at a car.

What about the the they're hosting the at 2014 World Cup and the 2016. Olympics. What impact will that have on the Brazilian economy.

We talked a little bit about infrastructure itself is not a part of it those are big events in this country yeah. Obviously Brazil says it has a world class soccer country. I was there in November and it's amazing how. Soccer is that our football opposite they call it yeah it is so and -- cruelty to that the culture. And this is the big deal then post in the World Cup so you're seeing a lot of investment into. Stadiums in the infrastructure on cities and to to host these games and the Olympics on top of that two years later so I think that's going to be an additional. Catalyst to fuel for infrastructure spending and also just more people coming to Brazil it's gonna drive spending retail sales. Just more consumption there and then that also will support the announcement.

So when you visited in November did you Whittle it down to some companies -- your interest in buying are you buying. Just broad based index is when you buy Brazilian make you Brazilian investment status.

We're actually doing both and I think that's there is an opportunity. Even on US trip traded names on stocks that you can do both of them so. Two names that would point to and an individual stock basis our personal foods BRF ass at the ticker. And that's one of the world's leading. Food companies -- food processing companies. They say they grow lots of chickens their big poultry exporter. -- think about food company in US history very slow but in in places like Brazil this company continue grow very fast doesn't it just an opportunity. Another stock I would point to is that October Tesco and that's one of the leading banks there the ticker is. BBC. I'm sorry and he -- BBD. -- don't look at -- Bravo Bravo David -- that like. And what it is you know seventy billion US dollar market cap company so large company but it's an excellent way to play. Banking and insurance and and Brazil got and it's a great way to play it at broadening middle class Q. Put another way to look at investing in Brazil for you know your average investor is to look at each yes extinction it's far right. And there are few of them that take advantage of the Brazilian. Opportunity one is ERF. Like frank that they small cap. Brazil ETF -- So again another opportunity to get a wide range of companies that are growing fast and the BR AQ. Is a consumer. ETF so it's basically consumer companies -- Again to play that broadening consumer base and middle class. And the big. Way to play in Brazil I guess the big company way to play it is EWC. And that's really. -- even like the Dow Jones index here and that's that the bigger companies in Brazil so there are three ways to do it but.

Other markets pretty act clean and he reads stories like I I. I don't make a lot of investments in Russia. Because. I I don't trust them I hate to say that that is just the way I feel. It is Brazil is it corrupt down there's are a lot of insider trading India are the markets reasonably clean with with your perceptive perception.

My perception at this point it's pretty clean. And I understand the concern -- that Russia and a lot of that is reflected in the valuations since the EC in Russia that the PE ratio for Russia is much smaller than it is. And -- it's not like -- you know as it and that's why and that's how it's reflected. A Brazil still trading at a discount to the US market clearly it's about -- ten times. This year nine times next year's earnings vs the US trading at twelve times this year. Eleven times in accidents just out there they do you think the the accounting is clean. And the government has done a good job I think in supporting business and mini summit corruption. But yet you always have that is an element of risk but I would say it's it's about the demise of last --

Are well Denis thank you very much for your time and thank you very much for your insight as a relates to investing in Brazil. -- right ladies and gentlemen that was Dennis while -- from. Cabot money management joining us today talking to us about well you know he's talking about Brazilian investing.