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The Ballistic Brazilian Bovespa IndexBy Gary Dorsch Higher prices for commodities from coffee to soybeans and iron ore to crude oil, have brought new found wealth to Brazil. Since the election of President Lula de Silva in 2003, Brazil has emerged as a major player in global trade, and its currency - the real, has climbed by 70% against the US dollar, with a trade deficit shifting into a massive surplus. The Bovespa index on the Sao Paulo Stock Exchange reached a record high of 52,750 this week, and is up 18.2% so far in 2007. Brazil economic output rose to $1.6 trillion last year, or half of South America's GDP, and making it the ninth largest economy in the world. Brazil occupies half the South American continent, contains half of its population with 200 million, and is the fifth most populous country in the world. However, there are vast disparities in the distribution of the country's land and wealth, and Brazil has the greatest number of people living in poverty in all of Latin America. Still, Brazil's arrival as a global economic power is linked to its vast mineral resources, particularly iron ore, which is highly prized by major steel makers in China, Europe, India, Korea, and Russia. Thanks to the development of Petrobras' offshore oil fields, and the country's extensive use of ethanol, Brazil has also become self-sufficient in energy, ending decades of dependence on foreign oil imports.  Besides iron ore, Brazil is blessed with other valuable minerals such as, chrome ore, copper, manganese, diamonds, gem stones, gold, nickel, tin, bauxite, uranium, platinum, and zinc. About a third of Brazil's economy is linked to agriculture, and it's the world's largest exporter of coffee, sugar, cattle, orange juice, and surpassed the US as the biggest exporter of soybeans in January 2006. The rain forests of the Amazon River basin produce timber, rubber, and other forest products such as Brazilian nuts and pharmaceutical plants. The emergence of the "Commodity Super Cycle," combined with a global economy expanding at an annualized 5% rate for the past four years, helped to lift Brazil's exports to a record $137 billion in 2006, with agricultural exports accounting for roughly 37% of foreign sales. Brazil's trade surplus expanded to $47 billion last year, up from $2.6 billion just 4 years earlier, and so far in the first four months of 2007, the trade surplus was $13 billion, or 4.3% higher than in the previous year.
But beneath the glossy export figures are some worrisome trends. Higher export prices accounted for 72% of the increase in Brazilian exports last year, while foreign sales volume increased by only 5.3%, much less than the 11.6% growth in 2005 and the 17.6% in 2004. The unrelenting strength of the Brazilian real is starting to cut into exporter earnings, and would become more troublesome for exporters if global commodity prices flatten out or move lower in 2007. Bank of Brazil's defense of US dollar Disintegrates Over the past 14-months, the Bank of Brazil (BoB) fought hard to prevent the real from appreciating against the currencies of its major trading partners in Europe (26% of trade) the United States (24%) and Asia (12%). Each day this year, the BoB intervened in the foreign currency market to mop-up the US dollars flowing into the country, and tried to put an artificial floor under the greenback at 2.10-reals.  Brazil's finance minister Guido Mantega said the central bank's foreign currency reserves soared to $120 billion in April, up from $52 billion in March 2006, during the bank's 14-month defense of the US dollar at 2.1-reals. On May 3rd, the BoB stepped up its intervention in the market and offered about $3.1 billion of reverse currency swaps, compared with a weekly average of $600 million, and executed another $1 billion of swaps on May 16th, but failed to halt the dollar's slide below 2.0-reals. To read the rest of this article, click on the hyperlink below: http://sirchartsalot.com/article.php?id=59 Gary Dorsch 321gold Ltd |
