Let’s take a look at the markets one at a time.

Bullish on Brazil

Having had its debt rating raised, Brazil is in the same position as an individual who gets a new job, pays off some debt and discovers the credit card companies suddenly all love him. It’s a heady position, and highly profitable for Brazilian companies, provided the government doesn’t go on a spending binge.

When Brazil was included in the "BRIC" group in 2003, it didn’t deserve the distinction. Long-term growth since the 1970s had averaged less than 2% annually per capita, and the country had narrowly avoided bankruptcy in 2002. Long-term interest rates were above 20% - around 15% in real terms - which hardly encouraged companies to make capital spending commitments that could provide a badly needed boost to Brazil’s flagging economy. Most alarming, a left wing socialist named Luis Inacio "Lula" da Silva had just been elected president.

Brazil got lucky. First, President Lula proved to be surprisingly moderate, perfectly willing to welcome foreign investment and not at all like his socialist neighbor, Venezuelan President Hugo Chavez. Probably more important, it was in 2003 that energy and commodity prices began the long climb that has brought them to their current astronomical levels. Since Brazil was not an oil exporter, there was no one single source of new wealth that the government could seize. Instead, revenue flowed to mining companies, the oil company Petroleo Brasileiro SA (usually referred to as just Petrobras) (ADR: PBR) and numerous agri-business operations.

Most startlingly, Brazil’s ethanol program, which had been a hopeless boondoggle for a generation since it started during the oil crisis of 1979-82, suddenly became the envy of the world. Rising oil prices made Brazilian sugarcane the world’s cheapest and most economically and ecologically efficient source of newly fashionable ethanol. Back when oil was trading at $20 per barrel, the ethanol-from-sugar program was a typical example of misguided Third World government planning. But now that oil’s pushing $130 a barrel, it’s a bonanza.

Brazil’s current growth rate is around 5% - but the Brazil of today is far more balanced and stable than in its 1970s version, even though growth back then was an impressive 10%. Brazil’s improving credit position is likely to allow today’s growth rate to persist. Besides, political risk appears minimal: When President Lula leaves office, a politician of the center-right could well replace him.

Another good sign for Brazil - there are more than 30 Brazilian companies with full American Depository Receipt (ADR) listings on the New York Stock Exchange, plus 40 or even 50 more traded on the over-the-counter market.  Here are a few of the more-attractive examples you might want to consider:

• Companhia Vale do Rio Doce, now referred to as Vale (ADR: RIO), is a huge iron-ore company with ancillary operations in gold, nickel, copper and other metals. At 10 times earnings, it is reasonably valued, though its dividend is only 1.6%.
• The afore-mentioned Petrobras (ADR: PBR), which is one of the few emerging-market oil companies with access to modern technology and a willingness to work with the oil majors. But there are several negatives. First, even with a recent sell-off, the company’s shares are up substantially in the past year. The stock’s Price/Earnings ratio is a somewhat-steep 16, while its dividend yield is a modest 1.6%. But there is a possible upside here, should it find another gigantic offshore oilfield. The downside case: Oil drops back to $50 a barrel.
• Companhia de Saneamento Basico, or Sabesp (ADR: SBS), operates the water-and-sewage system for Brazil’s Sao Paulo region.