Is It Time to Invest in Latin America?

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Is It Time to Invest in Latin America? PART 1 OF 20

Is Brazil Really Back in the Game, or Is It Time to Sell Again?

Is Brazil back in the game?

While the markets have been occupied with the global slowdown, turmoil in China, rising deflationary pressures, and muted growth in the Eurozone, Brazil has been outperforming the world (ACWI).

The Brazilian equity-tracking iShares MSCI Brazil Capped ETF (EWZ) has clearly outperformed the United States (SPY), Europe (FEZ), Japan (EWJ), and all other emerging markets (EEM).

Is Brazil Really Back in the Game, or Is It Time to Sell Again?

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As of March 13, 2016, the Brazilian ETF had made strides of about 35.2% over the past month compared to its peers. As of the same date:

• US equities rose 8.6%.
• European equities rose 10.7%.
• Japanese stocks rose 10.8%.
• Chinese (FXI) equities rose about 13%.
• Indian (EPI) equities rose 11%.
• Russian (RSX) equities rose about 19%.

Clearly, Brazil led the rally among emerging and developed markets over the month.

Emerging markets have outperformed developed markets

Comparing emerging markets (VWO) (EMB) to the developed world (EFA) (VEA), the iShares MSCI Emerging Markets ETF rose 13% as of March 13 compared to the Vanguard FTSE Developed Markets ETF (VEA), which saw a rise of 9.9% as of the same date.

To a certain extent, the recent emerging market rally can be attributed to the recovery in commodity prices such as oil, iron ore, and copper. In February, the price of crude oil rose 4.1%, the price of iron ore rose 12.0%, and the price of copper rose 2.8%. Iron ore and crude petroleum are among Brazil’s top five exports, while copper remains critical to Chile.

Latin American equity, especially Brazil, seems to be getting a definite boost from the reversal in commodity prices. If the rally continues, we can expect the upsurge to continue as well. A look at valuations at this point would give us some direction as to whether Brazil is really back in the game or the rally is just leading us to a time to sell.


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