Why Brazil and Canada’s ETFs Are Poised to Ride Out Downturn

April 16th at 12:30pm by Tom Lydon

Some countries are poised to ride out this economic downturn better than most, and they can offer exchange traded fund (ETF) investors some good options for their portfolios once potential long-term uptrends emerge.

Brazil and Canada are in good positions for the economic meltdown, because of these areas of strength:

  1. Falling interest rates
  2. Operating on long-term double surpluses
  3. They possess items other countries fund valuable, i.e. commodity-rich

Imari Love for Morningstar reports that with the major instability we’ve seen recently in currency exchange rates, a country with a current account surplus offers investors an important source of protection. A current account surplus also signals an inherent competitive advantage within a country; essentially, the world has more of a need for the country’s products than vice-versa. Both of these countries are rich with commodities other countries really need.

Countries that cut interest rates are also in the midst of stimulating consumer spending, which in turn , liven up economic growth. While cutting rates can lead to higher inflation and a weaker currency, the current account surplus again offers some protection. Compared to the other countries that are cutting rates and carry a large deficit, these countries are sitting pretty.

Long-term economic profiles for Brazil and Canada mean there are easier says ahead for them, than most. These countries are showing strong fundamentals while near-term indicators are not yet ripe, however, this means steady growth is ahead:

  • Brazil: The Bovespa is up 8.26% year to date after dropping 70% in 2008; iShares MSCI Brazil (EWZ) is up 24.6% year-to-date

  • Canada: The Canadian market is down 4.36% year to date, after falling by more than 35% in 2008; iShares MSCI Canada (EWC) is up 5.5% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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