Why Brazil Will Continue To Remain Attractive

 Brazil has been a hot ticket amongst emerging markets and, despite fears of inflation, other forces suggest that it is likely to continue to witness a booming economy. 

The South American nation is rich in natural resources which are likely to continue to be in demand as global populations expand.  Additionally, the nation has been selected to host the 2014 World Cup Soccer Championship as well as the 2016 Summer Olympics, which will likely result in increased infrastructure spending and an investment catalyst. 

To further add to Brazil’s attractiveness, the International Monetary Fund (IMF) predicts that Brazil will outperform nearly all other Latin American nations mainly due to its growth and stability generated through economic reforms and pragmatic governance.   More specifically, the Brazilian government mandates that subsidized loan rates on homes and appliances be underwritten by state-owned lenders which add to the stability of the nation’s financial system. 

Another force working in Brazil’s favor is low interest rates in real terms, which makes borrowing attractive.  Lastly, Brazil’s public sector jobs continue to grow and welfare payments have been increased by 30% indicating that the nation’s government is growing and is well funded.

In conclusion, a combination of these forces will likely enable Brazil’s economy to grow at a rate that will outpace the nation’s inflationary pressures and continue to bolster an already prosperous economy.  Here are some ways investors can play the Brazilian markets:

  • iShares Brazil MSCI Brazil (EWZ), which is heavily concentrated in materials and financials and will likely benefit from infrastructure building.  The ETF closed at $75.30 on Monday.
  • SPDR S&P Emerging Latin America ETF (GML), which allocates nearly 65% of its assets to Brazil.  GML closed at $82.98 on Monday.
  • iShares S&P Latin America 40 Index (ILF), which allocates nearly 62% of its assets to Brazil.  ILF closed at $49.64 on Monday.

When investing in equities it is imperative to keep in mind the inherent risks that are involved.  To help mitigate these risks, an exit strategy which identifies a price point at which an upward trend in these equities could come to an end is of utmost importance. 

According to the latest data from www.SmartStops.net, these price points are: EWZ at $70.60; GML at $77.26; ILF at $46.96.  These price levels change on a daily basis and updated data can be accessed at www.SmartStops.net.

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