The iShares MSCI Brazil Index (EWZ) has been one of the top performing exchange traded funds (ETFs) so far this year. Currently, it’s up 80.2% year-to-date. The exchange’s share price on Monday represented almost 50 times forward earnings, reports the Financial Times. This is a head-turner in that the London Stock Exchange is at 25 times 2008 earnings, the Singapore Exchange is at 30 times, but only Hong Kong’s is at a similar multiple as Brazil’s, says Carl Delfeld for ETF XRAY. Brazil’s economy is booming thanks to high commodity prices, and an investment grade credit rating is calling. In fact, Brazil’s largest company, Petrobas, has gone in market value from $27 billion five years ago to $173 billion. The largest 10 companies listed on the exchange have collectively gone from $94 billion in 2002 to $685 billion today.
However, there could be trouble in paradise for Brazil’s economy and its ETF. The Brazilian real fell Tuesday as global stocks and futures fell on worse-than-expected corporate earnings, raising concerns that demand for Brazilian assets and exports could be hurt, reports Adriana Brasileiro for Bloomberg. However, it still approaches the strongest level since April 19, 2000. Brazil’s currency has gained 21% this year, the second-most among the 16 most- actively traded currencies after the Canadian dollar.
For full disclosure, some of Tom Lydon’s clients own EWZ.
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.