Brazil’s exchange traded funds (ETFs) may ultimately look promising as the country rides the biggest economic expansion in three decades.
As this economy grows, Brazil has developed a new swagger that has provided it with greater leverage to push for a tougher bargain in trade talks with both the United States and Europe. Despite questions over just how much room for expansion there is actually left, some feel it could be a moot point.
According to Alexei Barrionuevo for The New York Times, Brazil’s growth has been fueled through a combination of respect for financial markets and targeted social programs, which are lifting millions out of poverty. With a history of unequal wealth, Brazil has shrunk its income gap by 6% since 2001, diminishing the unequal distribution of wealth. This is evident in income among the lower classes in Brazil. The bottom 10% of Brazil’s earners saw their income jump nearly 58% from 2001 to 2006 while the top 10% of earners only saw an increase of 7%.
Despite the numbers speaking for themselves, this economic expansion is expected by many experts to last. Nonetheless, a strong currency and inflation that has been kept in check for the most part has Brazilians spending rapidly, which acts as the motor for the economy. With the United States and Europe struggling with recession and housing crises, Brazil’s economy does not show the vulnerabilities of other emerging markets. It grew 5.4% last year.
Brazil’s economy is greatly diversified, as it has opportunities to expand its booming agricultural sector into new fields. It also has many untapped natural resources. Furthermore, new oil discoveries will push Brazil up into the top echelon of oil producers within the next decade. Brazil’s national oil company, Petrobras, expects to be producing 100,000 barrels of oil per day from one of its oil fields by 2010, and hopes to produce a million per day within 10 years. Similarly, Petrobras believes that anywhere between five and eight billion barrels of oil exist off the Brazilian coast.
As the slowdown of the global economy was originally thought to affect Brazil, this country has been surprisingly resilient and has showed no signs of a hangover from the economic problems the US and Europe face. Don Hanna of Citibank may put it best when it comes to the Brazilian economy, “What makes Brazil more resilient is that the rest of the world matters less.”
A few ETFs that could capitalize on the stability of the Brazilian economy include:
- iShares MSCI Brazil Index (EWZ), up 1.4% year-to-date
- Claymore/BNY BRIC (EEB), down 14.8% year-to-date
- SPDR S&P BRIC 40 (BIK), down 13.4% year-to-date
- iShares S&P Latin America 40 Index (ILF), up 2.3% year-to-date
As investors consider actions involving these ETFs, it is important to watch each 200-DMA before deciding whether they are in or out. While Brazil might have potential, it’s best to wait until it demonstrates a firm trend upward.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.