Changing dynamics in domestic economy will fuel growth in Brazil

Will Landers, fund manager of top performing investment trust, BlackRock Latin American, believes that the huge growth in Brazil's middle class is changing the dynamics of the domestic economy. This combined with an unprecedented period of economic and monetary stability, which has brought inflation under control, attractive valuations and predicted long term economic growth of 4-5% makes Brazil a compelling investment opportunity.

To capitalise on this shift in population, Landers will be focusing on sectors such as financials, homebuilders, beverages and consumer brands with about 35% in small and mid caps stocks.

"There is huge pent up demand from this burgeoning middle class" commented Landers, "Approximately 30 million people are now more economically active and not only seeking credit and housing but also becoming less restrictive with their spending habits. We expect such secular moves to balance any potential weakness in more cyclical, commodity-based sectors."

In particular The Company expects the under penetration of financial services to provide an excellent source of growth for the whole Latin American region and Brazil specifically. As an example, mortgages in Brazil account for about 2% of GDP and this is predicted to rise as high as 10% over the next five years given the low rate environment. This is likely to have a positive impact on banks, homebuilders and companies associated with these industries.

Landers also believes that some cyclical stories look attractive. He remains positive on companies such as Petrobras which is in a strong position as it has some of the fastest growing reserves in the world. Oil prices are set to increase and discoveries in the pre-salt area could transform Brazil into a major oil exporter over the next decade.

In terms of the broader picture, the manager believes the low interest rate environment and continuity in economic and monetary policy will have a positive impact on equities as the cost of doing business and the cost of capital comes down. Furthermore there is an expectation that local investors such as the pension funds will start to increase their allocation to equities with up to $30-$40 billion shifting from fixed income over the next five years which will further improve liquidity.

Landers concluded: "There are a lot of positive factors in Brazil which will be further boosted when it hosts the World Cup in 2014 and the Olympics in 2016. The Latin American regions we invest in have weathered the financial crisis well and Brazil in particular is well placed to deliver attractive returns in 2010 and beyond. We will therefore continue to hold an overweight position currently accounting for 84% of the portfolio."