Did anyone read the article on Brazil ETF's/Funds in yesterdays AWAKE email from The Daily Reckoning? It had some interesting suggestions.
dailyreckoning.com
EWZ is not the only game in town, dear reader. Two closed-end Brazil funds trade on the NYSE: the Brazilian Equity Fund (BZL) and Brazil Fund (BZF). Like EWZ, BZL also holds a hefty 25% position in oil and gas stocks (mostly Petrobras) and 25% in mining stocks. BZF, on the other hand, devotes only 14% of the fund to oil and gas and 24% to mining.
Remember too, that a bet on Brazilian stocks is not merely a backdoor play on the oil sector; it is also a backdoor play on Chinese economic growth. Brazilian exports to China have nearly doubled over the last three years, and the Asian juggernaut will likely overtake Argentina this year as Brazil's number two trading partner, remaining only behind the United States.
Thanks largely to booming Chinese demand for iron ore and other raw materials, CVRD's net exports alone represent a stunning 14% of Brazil's growing trade surplus with the rest of the world.
Both BZL and BZF trade about 10% below net asset value (NAV), a common, and attractive, feature of closed end funds. In other words, a buyer of either one of these funds spends only 90 cents to own $1.00 worth of assets. Think of it as "free leverage."
As for the Brazilian currency (the real), it continues to make the gradual transition from basket case to "best of show." OK, maybe not best of show, but this monetary mutt is no long the worst of show, and its steady appreciation has been a boon to buyers of Brazilian stocks.
The Brazilian real has jumped nearly 25% against the dollar since the end of 2002, right in line with the Canadian dollar's 25% gain over the same time frame. The real has gained more than 8% over the last three months alone - the best performance among the world's 16 major currencies.
The Brazilian currency's newfound strength is not entirely a mystery. Brazil's budget deficit dropped sharply in August to the equivalent of 2.8% of GDP from 3.3% of GDP, and the country is on track to post budget surpluses by 2006. (Meanwhile, up here in the "developed" world, the United States has developed an unparalleled aptitude for running up massive deficits. Our twin deficits - budget and trade - both top 5% of GDP).
The Brazilian economy is roaring ahead at better than 5% annual growth and, not surprisingly, investment capital is pouring into the former investment pariah. Despite the country's stellar growth prospects, however, the Brazilian Bovespa Index sells for 12 times earnings and yields 4.6%, that's about half and twice the respective PE and dividend yield of U.S. stocks.
Lest we forget to mention it, Brazilian stocks, like most emerging market stocks, often subject their owners to volatile ups and downs. But as long as the successive "ups" are higher than the preceding ups, the "downs" are well worth enduring. |
