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Industrial confidence in Brazil continues steady expansion

Brazil IC Triangle Jan 13Enlarge GraphConfidence surveys are a valuable tool to quantify the evolution of the general sentiment about a sector. These are surveys that ask respondents from several companies across industries to compare the current situation to that of the previous period. For each question the respondent has three choices: better, same, worse, with the resulting data showing how many respondents feel the conditions have improved, stayed the same or deteriorated. Based on this data, indices are created that allow investors to track the evolution of the responses. These surveys are generally monthly, though in some cases there are quarterly ones that include more questions to formulate a more detailed view of the industry.

The Brazilian Institute of Economy (IBRE1), publishes several surveys, including an industry confidence survey. This survey quantifies the general sentiment about the industrial sector in Brazil.  The survey has three key indices: confidence, current situation and expectations.  Both the confidence and current situation indices are composed of questions comparing current state to three months before.  The expectations index is based on expectations six months into the future and compared against the expectations a year earlier.

The graph above shows the change  in the three main indices between December 2012 and January 2013. The newest values for the confidence and current situation indices are the highest ones for the past year. The expectations index though posted a slight decrease, after hitting a high in December. Both the confidence and expectations index have now been for five consecutive months above their respective five year average. The data shows that the industrial sector prospects remain solid and likely means that the Brazilian economy is poised for continued growth after the past two years of sluggish growth.

This survey is a key data point for investors in the iShares MSCI Brazil Index (EWZ) or other small cap versions, as those by iShares (EWZS) and Market Vectors (BRF) should understand how the different components of the survey tie together to get a more in depth picture of the changes with respect to the previous period.  This survey may also be helpful for investors in Latam ETFs, which generally have Brazilian exposures of approximately 50%, such as iShares Latin America 40 Index Fund (ILF), as well as emerging market ETFs, like the Vanguard VWO ETF. This is just one of several surveys published in Brazil and in Latam that can quickly give an investor insight into the market.

  1. IBRE: Instituto Brasileiro de Economia, produces several surveys and macroeconomic indices. It is part of the Fundação Getulio Vargas, a top university in Brazil focused on Business, Economics, Law, Social Sciences and IT.

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