Rio de Janeiro

Modern Brazilian Carnival finds its roots in Rio de Janeiro in the 1845, when the city’s bourgeoisie imported the practice of holding balls and masquerade parties from Paris. It originally mimicked the European form of the festival, over time acquiring elements derived from Native American and African cultures.

In the late 19th century, the cordões (literally laces or strings in Portuguese) were introduced in Rio de Janeiro. These were groups of people who would parade through the streets playing music and dancing. Today they are known as blocos (blocks), consisting of a group of people who dress in costumes or specials t-shirts according to certain themes or to celebrate the Carnival. Blocos are generally associated with particular neighbourhoods or suburbs and include both a percussion or music group and an entourage of revellers.

This “blocos” have become a big part of Rio de Janeiro’s Carnival. There are more than 100 “blocos” nowadays and each year this number increases. Some are big, some are small, most concentrate in square and later parade though the streets and a few stay in the same place all the time. Each “bloco” has its place or street to parade and the big ones usually close the streets for car traffic. They usually start in January and last till the end of Carnival, so since the beginning of the year you can see a group of people dancing samba in any street of Rio in the weekends and during Carnival every day.

“Blocos” parade in Copacabana, Ipanema, Leblon, Lagoa, Jardim Botânico, and in the centre of Rio. Usually the people who organize the “bloco” write their own music, which is played at all time during the parade, along with old carnival favourites called in Portuguese “Marchinhas de carnaval”, and sambas that have become classics. Some important “blocos” are “O cordão do bola preta”, that goes through the heart of Rio’s historical center, and “Suvaco do Cristo” (Christ’s armpit in Portuguese), in the neighbourhood, near Rio’s Botanic Garden. Monobloco is another bloco that has become so famous that their band plays all year round in parties and small concerts.
Samba schools are very large, well-financed organizations that work year round in preparation for Carnival. Parading in the Sambadrome runs over four entire nights and is part of an official competition, divided into seven divisions, in which a single samba school will be declared that year’s winner. Blocos deriving from the samba schools also hold street parties in their respective suburbs, through which they parade along with their followers.

Bahia

There are several major differences between Carnival in the state of Bahia in Brazil’s Northeast Region and Carnival in Rio de Janeiro. The musical styles are different in each carnival; in Bahia there are many rhythms, including samba, samba-reggae, axé, and others, which are performed on a truck equipped with giant speakers and a platform where musicians play called a trio-elétrico. Massive numbers of people follow the trucks singing and dancing. The “Indian” groups were inspired by Western movies from the United States. The groups dress up as Native Americans and take on Native American names. Blocos Afros, or Afro groups, were influenced by the Black Pride Movement in the United States, independence movements in Africa, and reggae music that denounced racism and oppression. The groups inspired a renewed pride in African heritage.

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But aside from the images permeating TV and computer screens this time of year, how about the investment climate in Brazil?For someone not already invested in Brazil, there doesn’t currently seem to be any compelling need to immediately get into the marketWorldwide, current markets generally present above-average risks to any stock investor, and extreme caution is needed to navigate through these uncharted waters. The depth and duration of any impending U.S. or worldwide economic downturn is still largely unknown. Hence, a prudent investor is most likely to remain on the sidelines at least until the end of the first quarter of 2008 and let the market go through its gyrations.

There is not yet an overwhelming mass of evidence that a significant economic and market correction has already occurred in Brazil.

The Brazilian market’s Bovespa index, like most of the world’s stock market gauges, fell victim to selling in January. It skidded to a closing low of 53709.11 on Jan. 21 from its all-time high of 65790.81 set on Dec. 6 of last year. But within a week, it had recovered to near the 59000 level. The brief setback could hardly be described as a bear market, especially in emerging-market terms.Even at the trough of its January downward spike, the Bovespa held at levels no lower than four months earlier.So when considering that nation’s current economy, the logical conclusion is that failure to invest in Brazil at current levels doesn’t necessarily mean missing a great buying opportunity. There will very likely be plenty of time for investors to find bargains in mid- to late 2008 and beyond. Brazil’s economy has undergone some much-needed changes that could set the stage for more sustained growth and less volatility than in the past. Changes such as paying down its debt levels and keeping a lid on spending are exactly what emerging markets should be doing in times of prosperity. If the global expansion slows, it will affect Brazil’s economy in no uncertain terms, as commodity demand accounts for 50% of all of the nation’s exports.However, with a cleaner national balance sheet and policies that have attracted foreign investment, Brazil is in the best position it has ever been in to tackle the challenges of a global downturn.Brazil’s economic growth in 2007, as can be seen in the accompanying table, came in at 5.3%, more than double its most recent 10-year average of 2.5%. This has resulted in an uptick in inflation and has strained infrastructure resources such as roads, ports and electricity. So a global slowdown may be just the tonic to get Brazil’s growth rate back to more sustainable levels.Additional investment in infrastructure is needed for Brazil’s future economic expansion and international competitiveness. The prospect of a healthier national balance sheet will attract additional foreign investment to funds, likely boosting the nation’s securities markets. A glance at the high-double-digit returns in the accompanying table of funds with portfolio exposure of 20% or more in Brazil is likely to give pause to anyone tempted to jump in at current levels. The returns through the end of December seem to be discounting a lot of growth without providing much latitude for economic disappointment.

Commitments to funds with significant exposure to Brazil are more likely to turn profitable if made during periods of market weakness. The table was created by searching TheStreet.com Ratings fund database for open-end mutual funds, exchange-traded funds and closed-end funds with at least 20% of portfolio value in Brazilian-domiciled investments.

Most recently available portfolio data indicates that 806 U.S. open-end funds hold positions in 187 Brazilian investments worth an aggregate $76.9 billion. Twenty-three ETFs hold a combined $15.7 billion in 74 Brazilian companies, and 44 closed-end funds have positions in 50 Brazilian firms with a cumulative value of $831 million.A nearby table lists the 10 favorite investments of U.S. funds, sorted by combined value of holdings of open-end, closed-end and exchange-traded funds.

The standard time-test principles of investing should be worth careful consideration when looking at Brazilian investments at current levels, namely: Capital preservation should overrule all else. Capital preserved in safe money market funds and the like are tantamount to bullets in a gun — cash, the bullets, allows you to go hunting when the time is right.Investment in emerging markets such as Latin America is an opportunity to keep in mind. An emerging-market component to any well-diversified and conservative portfolio of funds can prove a “kicker” for returns. The risks are higher. However, if the core of a fund portfolio consists of large-cap multinational funds as well as international holdings in mature economies, then an emerging market such as Brazil balances out the portfolio nicely.