In November 2009 Petrobras, the Brazilian state-controlled energy giant, signed a $10bn loan deal with China's Development Bank. This deal involves Petrobras supplying 200,000 barrels of oil per day to China over the next ten years. Moreover, China is the biggest customer of Vale, the Brazilian mining group.
Chinese companies and state banks ploughed $20bn into Brazil in the first six months of 2010, compared with $83m in the whole of 2009. The financial services group Deloitte have predicted that Chinese investments in Brazil will average at about $40bn a year until 2014.
China is now Brazil's primary trading partner, surpassing the US for the first time. Last year China consumed 14 per cent of Brazil's exports and 13 per cent of Brazilian imports came from China.
"Brazil was the first developing country to establish a Strategic Partnership with China, in 1993. Since then this partnership has grown beyond our initial expectations reflecting internal changes in both countries and their growing international importance", says Clodoaldo Hugueney, Brazil's ambassador to China.
Performance of MSCI indices over 5-yrs
Source: Financial Express Analytics
Mark Mobius, fund manager of Templeton BRIC Fund said: "We think the world is still at an early stage of economic recovery. However, all countries do not move in the same direction at the same pace, so it is important to look at each country individually. For example, there was no recession in some parts of the world such as Brazil and China, where economic growth has continued."
The funds with the greatest exposure to Brazil and China are those known as BRIC (Brazil, Russia, India and China) funds. In addition to these, funds focused on 'global emerging markets' often have large weightings in these two countries.
Performance of funds over 2-yrs
Source: Financial Express Analytics
In 2010, managers of BRIC funds have been favouring Brazil and China rather than Russia and India, such that the portfolios of most BRIC funds are overweight in Brazil and China.
HSBC GIF BRIC Markets Equity has 39 per cent of its portfolio in China and 32 per cent in Brazil, leaving less than 30 per cent split between India and Russia. Similarly, Goldman Sachs, the group who coined the acronym BRIC, have 38 per cent of their BRIC fund in China and 33 per cent in Brazil.
Guido Stiel, Asian equities expert from the Allianz RCM BRIC fund team, emphasises the importance of domestic consumption in both countries. In China "the middle class is still growing, in turn boosting the level of consumer spending" and "in Brazil, the growing middle class and the healthy pipeline of Initial Public Offerings in Brazil are likely to continue to be key factors supporting companies which are focused on the domestic market."
Allianz describe Brazil as the 'new global economic powerhouse' and they list nine reasons why there are such a wealth of investment opportunities. The number one opportunity, as they see it, is in exporting to China. In addition, they list four further export opportunities: iron ore and other minerals, oil from the newly discovered fields, biofuels and agriculture.