Rio de Janeiro has been named the winner to host the 2016 Olympics. What could this mean to Brazil’s already bustling economy and its exchange traded funds (ETFs)?
Brazil’s economy has already been humming along, but two major sporting events could just be the icing on the cake: Rio de Janeiro has been tapped to host the 2016 Summer Olympics and Brazil will also host the 2014 World Cup soccer championship.
Other points in favor of the growing country’s economy, according to Charles Kraul for The Los Angeles Times:
- The International Monetary Fund (IMF) predicts that Brazil will outperform Mexico in 2009
- Consumer spending in Brazil is a big part of the country’s success; government incentives have also helped
- The government mandates that subsidized loan rates on homes and appliances be underwritten by state-owned lenders
- Public sector jobs have been added and welfare payments have been increased by 30%
- Brazilian interest rates are at 8.5%, the lowest they’ve been in history in real terms
There are several ways to play Brazil’s growth story with ETFs. The most direct is the single-country fund, iShares MSCI Brazil (NYSEArca: EWZ). It’s up 90.1% year-to-date. The fund has its heaviest weightings in materials and financials, which make up more than 50% of the fund. The materials sector could especially benefit as Rio builds the necessary buildings and stadiums to host the Olympics.
Another play is the Market Vectors Brazil Small-Cap (NYSEArca: BRF), which is up 12.7% in the last month. Small-caps tend to do well in a recovery, and this fund also has heavy weightings in consumer discretionary, industrials and materials – all areas that could benefit while Rio builds up and starts selling Olympics-related products.
The Brazilian real is also on what many analysts say is a sustained uptrend. This year so far, it’s the world’s second-best performing currency and it’s on track to rally for an eighth consecutive month, report Fabio Alves and Paulo Winterstein for Bloomberg. Next year, Brazil’s IPOs could double as the stock market continues to rally. One analyst believes that the real will rally to 1.80 per dollar by the end of this year. WisdomTree Dreyfus Brazilian Real (NYSEArca: BZF) is up 28.7% year-to-date.
For more diversified exposure, both iShares MSCI Bric (NYSEArca: BKF) and Claymore/BNY BRIC (NYSEArca: EEB) have heavy weightings in Brazil, along with exposure to the other four BRIC countries (India, Russia and China). They’re up 64.4% and 64.2% year-to-date, respectively.
For more stories about Brazil, visit our Brazil ETF category.
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.