Brazil’s economy is something it seems like every investor wants in on, and with all the economy has going for it, it’s no wonder. But is the flood of new money into exchange traded funds (ETFs) and other investments going to come at a price?
Direct foreign investment into Brazil’s economy is forecast to increase 47% this year, but many are beginning to broach the “B” word – Bubble. Brazil is going to host the World Cup in 2014, the Summer Olympics in 2016, the middle class is exploding and GDP has tripled since 2003. The country’s planning minister expects the economy to grow 6% this year. You can see what’s so appealing about Latin America’s largest country. [Our Guide to the BRICs.]
Last year, international investors added $11.4 billion to their stock holdings, the most since records began getting kept in 1994, says Joshua M. Brown for The Faster Times. Many believe the money will keep coming beyond 2010, too. [Brazil ETF Shows Is Might.]
The thing about bubbles is that you never know for sure whether it is one until it pops. Whether Brazil is in a bubble or not, you can protect yourself by first learning to spot the signs of a bubble, then implementing a trading strategy that incorporates a stop loss. Ours is set at 8% – high enough that we’re not in and out frequently, low enough to have a limit on losses. By having a point at which you get out, you can participate in any potential long-term uptrend resting assured that your risk on the downside is capped. [How to Spot and Avoid Bubbles.]
For more stories about Brazil, visit our Brazil category.
- iShares MSCI Brazil (NYSEArca: EWZ)
- Market Vectors Brazil Small Cap (NYSEArca: BRF)
- WisdomTree Dreyfus Brazilian Real (NYSEArca: BZF)
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.