Read on Twitter
Typically I am reluctant to invest my money into developing markets. Although I have made a few small investments here or there (like $JMIA), I typically stay away from these markets. Between currency risk, lower accounting standards, corrupt governments, and a variety of other
factors, the risk is often just too high. For example, I think there are plenty of exciting, high-growth companies in China, like $PDD or $JD, but I stay away of China because of these concerns. One market I am interested by and invested in, however, is Brazil. Here’s why:
Brazil (pre-pandemic) boasts one of the fastest growing and increasingly one of the largest economies in the world. While large portions of the country are still impoverished, it is quickly becoming a powerful player in the global economy and looks poised to continue this rise
Like many developing countries, Brazil deals with a lot of corruption, but its ratings for its levels of democracy and freedom continue to improve. As the country continues to advance technologically and economically, two trends could thrive: e-commerce and digital payments.
The Brazilian economy is currently dominated by ~5 massive banks, which control about 80% of the Brazilian market. For the everyday Brazilian, however, bank accounts and credit cards are not that common.
Over 1/4 of Brazil’s 200 million+ population doesn’t have a bank account and 85% of transactions in Brazil are still completed in cash. Many of the Brazilians who do have bank accounts use them sparingly, not having the type of relationships with their banks that exist in the US.
This industry, therefore, is ripe for disruption. By bypassing the entire system of credit cards and democratizing the banking industry, companies like $MELI, $STNE, $PAGS, and (unsuccessfully) $FB, are attempting to change the entire system.
For a country seeking to be a player in the global economy, a financially literate population is a necessity. Companies like $STNE are making this possible, while also giving Brazilians opportunities to save more money and buy/sell things they never could have in the past.
The other trend that is rapidly growing in Brazil is e-commerce. Nonetheless, it only made up ~5% of all sales in the Brazilian economy last year. Again, companies like $MELI and $STNE are at the cutting edge of innovation in this sector.
Small businesses increasingly have access to e-commerce opportunities, while everyday Brazilians are realizing the life-changing effects an $AMZN like company in $MELI can have.
Despite the prominence of poverty throughout large parts of Brazil, the market opportunities for e-commerce, online banking and credit, and digital payments are in the hundreds of billions. If these companies expand beyond Brazil, those markets continue to grow.
This is a huge opportunity that is overshadowed by the “bigger” but IMO riskier opportunities in China. Investing in Brazil is certainly high risk and there promises to be tons of volatility, but I believe companies like $MELI, $STNE, and $PAGS can bring massive returns.
Currently, $MELI is my third largest holding, and I am continuing to add to a small position in $STNE. I intend to research $PAGS further, but right now I like $STNE more.
Check out this awesome article by @nrossolillo on @themotleyfool on the huge opportunity $STNE has! https://www.fool.com/investing/2020/06/18/stoneco-disrupting-status-quo-economy-brazil.aspx
As always, any thoughts would be appreciated. I am always looking to diversify my portfolio and investing in Brazil presents a fun opportunity to learn about a new market with massive potential upside.
