Amid the global economic slowdown, Brazil has emerged as one of the world's top developing markets. Naturally, companies have been making a beeline to the largest South American nation as it offers them a huge and largely untapped market.
Among those is the world's largest retailer, Wal-Mart (NYSE: WMT ) . The company is dishing out close to $755 million to expand its operations in Brazil. The retailer intends to open 80 stores there in 2011 as part of its overall expansion plans to take advantage of the burgeoning Brazilian middle class.
Wal-Mart in Brazil
The 'Mart has already invested nearly $3.8 billion in Brazil in the past five years. The retailer has more than 450 stores in Brazil under nine retail brands. Last fiscal year, Wal-Mart's growth in Brazil, along with China and Mexico, recorded some of the company's highest sales increases. Expansion in Brazil is important for Wal-Mart as it looks to maintain its financial strength internationally. In Brazil, Wal-Mart sits third in sales and is already behind the world's second-largest retailer, Carrefour.
Brazil's vast pool of natural resources and its trade relationship with fellow emerging market China make it an obvious choice for investors, even on the retail front. With Brazil all set to host the World Cup in 2014 and the Summer Olympics two years later, this will likely translate into further investments, stimulating the nation's infrastructure and commodity markets. Along with this, GDP in Brazil grew by 10% in 2010, with a projected 6% this year. While that is a decline in growth, the forecasts out of Brazil are still promising.
Brazil has also shown impressive stock market returns since 2007, compared with other BRIC countries, Bloomberg data shows. It has shown positive returns of around 4.7%, where Russia, China, and India have all shown negative returns. Overall, these figures are why Brazil has caught investors' attention.
Others eyeing the market
The South American giant has even caught the eye of the world's most famous investor, Warren Buffett. The Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) CEO and chairman is reportedly on the lookout for deals in China and Brazil after he said he was impressed by these emerging markets. And Brazil has drawn the interest of
the world's largest coffee purveyor, Starbucks (Nasdaq: SBUX ) , which is planning to invest and expand in the emerging market.
The Foolish bottom line
Wal-Mart's plans for expanding in Brazil should pay dividends in the long run. The company has already enjoyed considerable success there and should continue to do the same. Will this spur rival retailers such as Costco (Nasdaq: COST ) and Target (NYSE: TGT) to also consider similar movements in Brazil? I'd say probability is high.
But for the time being, Wal-Mart, with its proposed expansion plans and its new initiatives, is looking good for the future. These plans should boost Wal-Mart's fundamentals, which is always a welcome sign for shareholders.
Shubh Datta doesn't own any shares in the companies mentioned above. Berkshire Hathaway, Costco, and Wal-Mart are Motley Fool Inside Value recommendations. Berkshire Hathaway, Costco, and Starbucks are Motley Fool Stock Advisor picks. Wal-Mart is a Motley Fool Global Gains recommendation. Wal-Mart is a Motley Fool Income Investor choice. Motley Fool Options has recommended a diagonal call position on Wal-Mart. The Fool owns shares of Berkshire Hathaway, Costco, Starbucks, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.