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Surprising Places for 2012 Investing: Paraguay

It's among the world's fastest growers and offers a long-term play


The CIA World Factbook was recently updated with 2010 estimates of gross domestic product growth rates for countries around the world. In case you’re interested, the U.S. is ranked No. 127, with an estimated 2.8% GDP growth for 2010.

According to the list, six countries have GDP growth that’s outpacing the rest of the globe:

GDP Growth Rates
Country 2010 gdp growth estimate (%) Largest gdp sector (%)
Qatar 16.3 Industry-71.8
Paraguay 15.3 Services-53.9
Singapore 14.5 Services-71.7
Taiwan 10.8 Services-67.5
India 10.4 Services-54.7
China 10.3 Services-43.0

It should come as no surprise to see Taiwan, India and China near the top of the list because the rise of international trade and, yes, even capitalism, in Asia have triggered a massive 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 have even a minimal working knowledge of Paraguay? That’s because its economy is so small — ranked No. 145 in terms of GDP per capital (the U.S. is No. 11 on that score). But Paraguay’s unknown status may not last for long. So, let’s take a look at Paraguay as the first of my Surprising Places for 2012 Investing.

Paraguay is a landlocked nation, hemmed in by Brazil, Bolivia and Argentina, and its economy comprises mostly a plethora of micro businesses. But it’s also a rising agricultural star — the sixth-largest soy producer in the world. And the increasing demand for commodities has sparked renewed growth fervor. 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 that 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 nation. And that will bring investment opportunities to the country’s door.

After shaking off the chains of its 30-year dictatorship, Paraguay has made tremendous progress. But it still suffers from political uncertainty and corruption, as well as limited infrastructure improvements, which can dampen investment opportunities. However, the tremendous pace of DDP growth is causing the world to take a chance on what might be a fabulous profit-making opportunity.

Russian oil giant Gazprom has been rumored to be interested in energy exploration in Paraguay. Paraguay now shares the world’s largest hydroelectric dam with Brazil, so it has a big source for electrical energy. Yet it imports most of its hydrocarbons from Venezuela and other South American neighbors. Gazprom seems to think that since other countries in the region have found huge reserves of crude oil, and Paraguay is so far largely unexplored, that it just might have considerable potential.

Considering that Rio Tinto is planning to invest some $3.5 billion in an aluminum smelter in the country, Paraguay’s program of actively encouraging foreign investment 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 changes hands in the U.S. The BVPAS  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 isn’t 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 drawn from the greater Latin American region.

At least a couple of exchange-traded funds (ETFs) now include Paraguayan companies:

  • iShares S&P Latin America 40 Index (NYSE:ILF), which Morningstar rates with four stars
  • Market Vectors LatAm Small-Cap Index ETF (NYSE:LATM) is an unrated, fairly new ETF

As you might expect, 2011 wasn’t good for Latin American shares, with the ILF down almost 18% year-to-date, and the LATM dropping 27%, according to Morningstar.

But in 2009, the ILF returned 91% to investors — not bad. And even in 2010, investors in ILF earned 15.53%. So, while 2011 was very rocky 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 hardly a hotbed of investor activity, and investing there 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 in Surprising Places for 2012 Investing — “Qatar: Not Yet an Investor’s Dream”

Nancy Zambell does not own shares in ILF or LATM.

Article printed from InvestorPlace Media,

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