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Wednesday, December 22, 2010

Investing in Global Shifts: Brazil, Latin America, the Container Trade, and More

While the U.S. economy slogs forward with various pockets of strength (e.g. technology, agriculture, certain industrial areas) and wrestles with well-known fiscal challenges, other parts of the world -- such as Latin America -- are zooming ahead.

For example, the other week, CBS's 60 Minutes had an interesting segment on Brazil, which we share here and recommend watching:
  • Brazil's Rising Star
  • December 12, 2010 5:20 PM
  • As the U.S. and most of the world's countries limp along after the crippling recession, Brazil is off and running with jobs, industry, and resources. Steve Kroft reports.

A number of things stand out in the segment, including:
  • "poised to overtake France and Great Britain as the fifth largest economy in the world"***
  • "GDP-wise, bigger than all other Latin American economies put together"
  • "80% of electricity comes from bio-power"
  • "14% of world's fresh water supply"
  • "largest producer of iron ore in world"
  • "leading exporter of beef, chicken, orange juice, sugar, coffee, and tobacco, much of it bound for China, which has replaced the U.S. as Brazil's largest trading partner"
***IMF estimates via Wikipedia show Brazil may have already passed these countries in purchasing power parity GDP terms)
Now, for the entire regional picture, here's a 2010-11E GDP growth snapshot from the IMF that indicates expected growth north of 5% for much of the region, including Brazil (click to enlarge):

As in other emerging regions, it seems like the train has left the station. What are the implications for the global economy and an investment portfolio? First, put simply: more trade, more consumption, more investment around the world. Second, as an investor, per our prior commentary, we need to keep a global perspective and establish exposure to companies that benefit from ongoing global expansion.

Based on our recent post on Seaspan (SSW) and prior posts on the shipping sector, we know that 2010 trends have been quite positive. BUT, what about long-term trends? What happened with regional trade over the last several decades?

We can look to our April post, Shipping: Container History from 1985 and Outlook, which included insightful graphics from TAL International Group, Inc. (TAL), including:

We can also look to the AAPA, the American Association of Port Authorities, "a trade association which represents more than 160 public port authorities in the United States, Canada, the Caribbean and Latin America." The AAPA includes a "Statistics" section on its Web site that contains a plethora of helpful information.

We share two things from the AAPA here:

  • Brazilian Port Traffic (2009)

  • Click to enlarge and, aside from a weak 2009, notice the long-term increases across various types of cargo volumes for the Ports of Brazil:

  • U.S. Sea Trade Volumes with South & Central America (1992 - 2009)

  • What about U.S. Seaborne trade with all of Central and South America? U.S. exports to the region - click to enlarge (*please see reference link for exports, imports, and total trade):

    We can quickly see the tremendous growth in trade with the region over the past decade. This is a large part of our investment thesis for Seaspan and Global Ship Lease (GSL).

    YET, we don't simply have an ownership position in container ships. Aside from broadly global businesses such as eBay (EBAY) -- which has its own LatAm exposure plus an approximate 18% stake in MercadoLibre (MELI) -- we also own companies with more concentrated exposure in Latin America such as Compañía Cervecerías Unidas S.A. (CCU) and PriceSmart (PSMT). As with our prior brief mention of Compañía Cervecerías and PriceSmart, we should again note that very positive 2010 stock runs leave valuations somewhat less attractive than one year ago.

    However, on the back of favorable, readily apparent secular shifts, we continue to sleep well owning these businesses as well as a critical piece of the global transportation infrastructure via our container shipping companies.

    Happy investing,

    Jeffrey Walkenhorst

    Disclosure: long GSL, SSW, EBAY, CCU, PSMT.
    © 2010 Jeffrey Walkenhorst
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