Thursday, December 8, 2011

GDP Growth Hot Spots: Some Surprising Ideas for 2012 Investing

The CIA World Factbook CIA - The World Factbook was recently updated with 2010 estimates of Gross Domestic Product (GDP) growth rates for countries around the world. In case you’re interested, the U.S. is ranked number 127, with an estimated 2.8% GDP growth for 2010.

According to the list, these are the six countries  whose GDP growth is outpacing the rest of the globe:

2010 GDP Growth Estimate (%)
Largest GDP Sector (%)

It should come as no surprise to see Taiwan, India, and China near the top of the list, since the rise of international trade and, yes, even capitalism, in the region, have triggered a massive Asian economic growth spurt for the last three decades.

Likewise, the oil flowing through Qatar’s veins—especially in light of the steep climb in energy prices in the past 15 years—makes sense of that country’s high GDP growth.

But Paraguay? Seriously, how many people out there have even a minimal working knowledge of Paraguay? That’s because its economy is so small—ranked number 145 in terms of GDP per capital (the U.S. is #11) in the world. But Paraguay’s unknown status may not last for long.

Paraguay is a landlocked nation, hemmed in by Brazil, Bolivia and Argentina, and its economy is generally made up of a plethora of micro businesses. But it is also a rising agricultural star—the sixth largest soy producer in the world. And the increasing demand for commodities has sparked renewed growth fervor in the country. Between 2003 and 2008, Paraguay was on a blockbuster path, but a 2008 drought plus the global recession put a temporary halt to the expansion. The government responded by implementing fiscal and monetary stimulus packages which put the country back in a growth mode last year—at the fastest pace of all South American countries.

Paraguay’s economy is estimated to expand to $1.5 billion, due to the implementation of its National Telecommunications Plan, slated to expand broadband communication throughout the country. And that will bring investment opportunities to the country’s door.

Paraguay has made tremendous progress, after shaking off the chains of its 30-year dictatorship, but the country still suffers from political uncertainty and corruption, as well as limited infrastructure improvements, which can dampen investment opportunities. But the tremendous growth of the country’s GDP is causing the international world to take a chance at what might be a fabulous profit-making opportunity.

Russian oil giant Gazprom has been rumored to be interested in energy exploration in the country. After all, Paraguay is bordered by two major rivers, and because it shares the world’s largest hydroelectric dam with Brazil, the country has a big source for electrical energy. Yet it imports most of its hydrocarbons (organic compounds, the majority which naturally occur in crude oil) from Venezuela and other South American neighbors. But Gazprom seems to think since other countries in the region have found huge reserves of hydrocarbons, and Paraguay has, thus far, been largely unexplored, that it just might have considerable potential.

As well, Rio Tinto is planning to invest some $3.5 billion in an aluminum smelter in the country.

The country has undertaken a program of actively encouraging foreign investment, and its efforts certainly seem to be paying off.

But for foreign stock investors, it’s not easy to invest in Paraguay—just yet.

The publicly-traded shares in the nation’s stock market—Bolsa de Valores y Productos de Asuncion. (BVPASA)—are valued at around $409 billion, compared to the $15 trillion that regularly change hands in the U.S. The stock exchange is just 19 years old, and as of 2010, had only 85 publicly-traded companies.

Trading is pretty limited, and highly speculative. And with world markets as volatile as they are lately, I would certainly not recommend that investors attempt to buy directly into the Paraguayan stock market, even if you were able to do so (which is not likely).

But as global markets become steadier—as I think they will in 2012—investors who can tolerate a high degree of risk for a possible high return might consider participating in Paraguay’s growth by buying into a pool of stocks of the greater Latin American region.

There are now at least a couple of exchange-traded funds (ETFs) that include Paraguayan companies:

·       iShares S&P Latin America 40 Index (ILF), which Morningstar rates with four stars
·       Market Vectors LatAm Small-Cap Index ETF (LATM), not rated, fairly new ETF

Of course, as you might expect, 2011 was not a good year for Latin American shares, with the ILF down almost 18% year-to-date, and the LATM dropping 27%, according to Morningstar. iShares S&P Latin America 40 Index (ILF) ETF Total Returns

But in 2009, the ILF returned 91% to investors—not bad! And even in 2010, investors in ILF earned 15.53%. And while 2011 was a very rocky year for global markets—especially emerging economies—I believe the future growth in those regions will be the key to significant gains for investors in the next decade.

Of course, Paraguay is not yet a hotbed of investor activity, and investing is still extremely risky, but for those with a high degree of risk tolerance and a long-term outlook, a bit of speculation may help “stuff” your 2012 stocking!

Next up: Qatar—Not yet an Investor’s Dream

Disclaimer: Nancy does not own shares in ILF or LATM.

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