How to Invest in Brazil

In recent years, Brazil has started booming.

According to the U.S. State Department, Brazil is the second largest economy in the western hemisphere, only after the United States itself. It's the 12th largest economy in the entire world. This sheer size, combined with an equivalent diversity of investment opportunities, has made Brazil an increasingly attractive market for foreign investors.

So… let's say that you're interested. You would like to invest in Brazil. Here's what you need to know.

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What Is Foreign Investing?

Foreign markets have become a popular alternative investment class. Every year, Americans invest trillions of dollars in assets, ideas and other investments around the world. By way of example, according to the BEA Americans invested more than $6.5 trillion in foreign markets in 2022 alone.

For an investor, this can be split into two basic strategies: foreign investing and foreign portfolio investing (FPI).

Foreign investment can refer to any situation where your money is exposed to another country's economy. For example, you might invest in a U.S. company with significant Brazilian operations. This can be considered a foreign investment because, even though your shares reside in the United States, their performance will depend on Brazilian market conditions.

Foreign portfolio investing is when you purchase assets that are legally or physically located in another country. For example, you might buy shares of stock in a Brazilian company on a Brazilian stock exchange. This would be considered a foreign portfolio investment. There is a subset of portfolio investing known as foreign direct investing , in which you purchase a controlling interest in a foreign company or asset.

Foreign investing is considered an alternative/asymmetrical asset class because it exposes your money to different systematic risks than domestic investing. Specifically, all domestic investments operate in the same legal and economic environment. For example, an investor may hold shares in several different companies across the NYSE and NASDAQ. This may feel like a well-diversified portfolio, but those assets are still exposed to the same risks and opportunities of U.S. taxes, laws and market events.

Investments in another country have are exposed to entirely different legal, tax and economic conditions. This gives them a different set of systematic risks, diversifying your portfolio's risk.

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How To Invest In The Brazilian Economy

The Brazilian economy has drawn attention for its volatility. Over the past 30 years, it has experienced a currency revaluation, a recession, a period of significant growth, another recession, and a post-recession period of resumed growth . This has drawn significant interest in a wide range of investment opportunities.

As with all foreign investments, it is critical for investors to understand the market before they make any purchase. Portfolio or direct investments in Brazil will typically be governed by Brazilian law and overseen by Brazilian courts. Unless stated otherwise, contracts for sale will typically be written and adjudicated in the nation's primary language (here, Portuguese). While liquid market investments are typically relatively stable (such as stock purchases), major investments (such as real estate) should typically be made only with the assistance of a local attorney.

The Brazilian government places some restrictions on foreign investment. Specifically, according to the U.S. State Department, "[f]oreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors." There are also some restrictions on foreign investment in real estate, specifically rural, border and maritime properties.

For a large, modern economy like Brazil's, there are many ways to invest. A few of the most popular include:

Stock Purchase

Americans can legally purchase stock on the Brazilian stock exchanges. The biggest exchange in the country is the B3. For non-resident investors, Brazil has several legal requirements for buying stock and other financial instruments. Specifically, you must :

• Designate a legal representative
• Designate a tax representative
• Designate a local custodian
• Choose a local broker

In practice, you can often manage this by working with a global-facing broker in the United States. Many American brokers have global operations that include legal, tax, custodial and other representatives in foreign nations. A broker who offers stock sales in Brazil will typically offer the legally required domestic relationships as an extension of your relationship with the broker. Otherwise, to purchase shares of stock in Brazil, you will likely have to work directly with a nationally based broker who can offer the legal and financial representation you need.

You can also purchase shares of stock in American companies that operate significantly in Brazil, either as a market or a supplier. This can often be very useful, as it exposes you to the Brazilian economy through a domestic asset, allowing you to avoid any legal complications from holding assets abroad.

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ETF and Mutual Fund Investments

Portfolio-based investments are a popular mechanism for foreign investment.

With an ETF or mutual fund , you buy shares in an underlying portfolio. In this case, the underlying portfolio might invest in Brazil, specific sectors of the Brazilian economy, or South America at large. In all cases, your investment will perform based on the performance of the assets purchased in and around the Brazilian economy.

This gives you the standard mixed benefit of a fund-based investment. Your money is insulated from the higher risks of single-asset investing, while also potentially missing out on the higher rewards of an individual asset's outsized performance. This investment also gives you much easier access to a foreign market like Brazil's. You do not have to worry about researching the local markets or managing local laws. Your asset (the fund shares) will be a U.S. asset, while the portfolio manager handles the financial and legal complexities of investing in a foreign market.

This is often the best option for individuals looking to invest abroad.

Brazilian Real Estate

Finally, real estate investment has become an unevenly popular vehicle for investing in Brazil.

There are several reasons why real estate is a popular asset class. The Brazilian real has historically been weak against the dollar, giving foreign investors an advantage when it comes to making large purchases in the local economy. The growing economy has also made both industrial and domestic real estate increasingly popular, as investors seek to capitalize everything from office space to tourism.

However, Brazilian real estate has also been plagued with a few underlying issues. The mortgage and transfer system in Brazil is underdeveloped, often forcing buyers to seek financing outside of the country. This can introduce several additional legal and financial issues that make a transaction more expensive and more complicated. Brazil also has ongoing issues with corruption and violence that can make it difficult to hold valuable physical assets, attract tourists and visit as a property owner.

That said, foreigners are typically free to buy real estate in Brazil. Urban prices and popular vacation spots have, in particular, grown significantly in value over recent years. While investors should make sure to seek local legal council, and should have domestic insurance against theft, appropriation and damage, this can be a lucrative asset class.

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The Bottom Line

As the second largest economy in the western hemisphere, investing in Brazil has grown increasingly popular. There are many ways to do this, from buying stock on the Brazilian exchanges to investing in U.S.-based portfolios that seek opportunities in Brazil.

Tips on Foreign Investment

• While foreign direct investment refers to taking a controlling share of a company, most investors aren't quite operating at that level. Instead, let's look at foreign portfolio investing, the practice of buying into another country at the retail level.
• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• To keep up to date on important events that may affect Brazilian markets and other markets, sign up for the free Market Minute Newsletter .
• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid - in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks .

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