Latin Stocks That Are Making A Bundle From China (ILF, GML, VALE, BRFS, PBR, TS, PZE, GMK, BVN)
Tony Sagami: This column is devoted to Asian investment opportunities, but it doesn’t mean you or I should ignore the rest of the world. That is especially true when companies in other regions are making big profits by doing business with China.
In fact, one of my long-running, consistent investment themes has been to urge you to get ‘long’ whatever the Chinese are buying.
In most cases, they are buying the strategic natural resources it needs to fuel its future growth, which includes popular consumer goods for the country’s growing, affluent middle class.
The Chinese have been blitz-buying everything from oil reserves to Louis Vuitton purses, from copper to iPhones, and from soybeans to Yum Brand pizzas.
China Has Tapped Into Latin America’s Resources
China’s government is using sovereign wealth funds and state-owned enterprises to buy up economic assets. One place where it is spending a mountain of money is Latin America.
Latin America is blessed with a wealth of natural resources, such as natural gas, tin, oil, copper, nickel and fertile farmland.
Those riches haven’t escaped China’s notice, and it has secured DECADES of natural resource supplies Venezuela, Brazil and Argentina.
In fact, China invested $15.6 billion in Latin America over the last 12 months, according to Deloitte Consulting. That’s a 300% increase over the previous 12 month period.
Heck, China is even loaning money — a whopping $32 billion — to Venezuela, which is obligated to pay back this debt with oil. “Viva China! I’m in love with China,” shouted Venezuela dictator Hugo Chavez.
Even often-overlooked Ecuador is cashing in. Chinese oil company Petro China loaned $1 billion to state-owned Petro Ecuador in exchange for oil deliveries. Plus, China Development Bank loaned $1 billion last year to Ecuador’s government to be repaid not with cash but with future oil shipments!
China’s focus has been on energy and industrial minerals — during the last three years, more than 70% of China’s investment in the region went into those two categories — but China is also locking up agricultural assets and food supplies.
China understands that it can’t produce enough food to feed its citizens, so it is aiming to fill its bowls from foreign fields.
China already buys the majority of Argentina’s soybeans, its top crop and largest source of export revenue. This may surprise you, but those soybeans aren’t used to make tofu and soy sauce. Soybeans are mainly used as livestock feed in China, where meat consumption is rising along with personal incomes.
Last week, China’s largest farming company, Heilongjiang Beidahuang Nongken Group, signed a joint venture with Argentina’s Cresud SA to buy land and farm soybeans. Cresud is one of Argentina’s top agriculture firms with control over more than 2.47 million acres of farmland. Heilongjiang Beidahuang is also spending $1.5 billion to lease and develop farms on 300,000 hectares in Argentina’s Rio Negro Province.
Heilongjiang Beidahuang Chairman Sui Fengfu said he plans on buying 500,000 acres of overseas farmland in 2011 and that Latin America is his main target.
By the way, Heilongjiang Beidahuang already farms about 5 MILLION acres of land outside of China.
China needs pork. It accounts for 50% of global pork consumption. This year it will import 1 million metric tons of pork, an increase of 20% over 2010 levels. Within the next four years, Brazil’s annual pork supply to China is expected to touch 200,000 metric tons.
The price of commodities is surging along with Chinese demand. For example, over the last five years, the price of gold increased more than 150% and oil has gone up 87%. High commodity prices are music to the ears of many Latin American companies.
Latin Stocks Making a Bundle Selling Commodities to China
There is no shortage of Latin American stocks that are making a bundle selling to the Chinese. Here is a short list of Latin American natural resource stocks that are traded on the NYSE and Nasdaq.
Cresud Inc. (Nasdaq:CRESY) owns almost 700,000 acres of farmland, primarily in Argentina, and produces beef, milk, wheat, corn, soybean, and sunflower, and sorghum.
Compania de Minas Buenaventura SA (NYSE:BVN) is primarily a precious metals company but it also produces a significant amount of zinc, lead, and copper.
Gruma, SAB (NYSE:GMK) is a Mexican company that produces rice, oats, corn flour, and wheat flour.
Petrobras Argentina SA (NSYE:PZE) engages in the oil exploration and production activities in Bolivia, Ecuador, Peru, and Venezuela as well as Argentina.
Tenaris SA (NYSE:TS) produces seamless and welded steel tubular products and related services for the oil and gas industry.
Petroleo Brasileiro SA (NYSE:PBR) is an oil and natural gas exploration, production, and refining company.
BRF Brasil Foods SA (NYSE:BRFS) produces 40% of Brazil’s pork exports.
Vale SA (NYSE:VALE) engages in the exploration, production, and sale of basic metals — iron, copper, nickel, and aluminum — in Brazil.
Those are just some of the ADRs (American Depositary Receipts), so if you’re savvy enough to not limit yourself only to the U.S. exchanges, there are DOZENS of other fantastic Latin American energy, mining, and agriculture stocks to consider.
If you’re more of an exchange traded fund investor, there are plenty of Latin American ETFs, such as iShares S&P Latin America 40 Index (NYSE:ILF) and SPDR Emerging Latin America (NYSE:GML), to consider.
If you’re looking for more in-depth research and investment ideas for Latin America, I highly recommend Emerging Markets Winners, edited by my good friend Rudy Martin. Rudy is one of the top experts on Latin America stocks.
Lastly, please keep in mind that I’m not suggesting that you rush out and buy any of these stocks or ETFs. As you know, timing is everything when it comes to investing, so you should do your own homework and wait for stocks to go on sale before jumping in.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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