Just last year, emerging markets were predicted to be the driving force behind a more than 5% annual global growth rate. Yet on March 11, the Organization for Economic Cooperation and Development reported that emerging markets are the reason why global growth will slow.
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Over the last decade, Brazil has grown to become the world's sixth largest economy by nominal GDP, a staggering feat fueled by a massive increase in its middle class ranks.
The nation has been rife for investment opportunity based on its fundamentals and strong commodity sectors, and finds itself as the leading BRIC (Brazil, Russia, India, China) emerging market.
But the recent wave of public protests over the last month could be signaling that Brazil has hit a major snag in its quest to displace France in the top five economies, and its opportunities for growth and fortune may be faltering as the nation experiences increased political turbulence.
The wave of protests began a month ago in Sao Paulo after the government increased bus fares by 10% (a rate that subway fares seem to rise in New York every other week). But the increases were quickly revoked in San Paulo and other major cities after the protests became much larger than about mere bus fares.
Residents have been especially frustrated by a lack of transparency across the country, and the government's increased taxation and decreased returns to average Brazilians in the form of basic and essential services.
Brazil has spent approximately $30 billion to showcase itself to tourists during the 2014 World Cup and 2016 Olympics. Meanwhile, the nation's anti-poverty programs have a mere annual of budget $10 billion in a nation of 191 million.
The widespread demonstrations have produced a national movement to demand better education, healthcare, and transportation services. Despite the protests, the country simply can't meet these obligations at this time for one simple reason: government can't keep up with economic expansion.
Brazil provides one important economic lesson that no one talks about when it comes to rising middle classes in emerging nations.
Many governments are not prepared for population shock or the shock of economic growth.
And while this stands to create a wave of new problems for investors looking abroad for investment opportunities in Brazil, it also teaches a valuable lesson and opens new doors to wealth in South America.
The Retched "Incline" of the Middle Class
It's embodied by those words penned so long ago by a young Thomas Jefferson...
It's the idea that "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."
After a wild first quarter that included unrest in Egypt, Libya and Saudi Arabia, a spike in oil and gasoline prices, an apparent acceleration of inflation and continued global debt fears, investors need to embrace investment strategies and investment choices that will provide returns even as they manage risk, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
"In many ways, we are truly entering uncharted territory," Fitz-Gerald said.