uploads///Brazils Valuations Look Attractive

Finding Investment Avenues in Commodity-Driven Economies


Mar. 31 2016, Published 6:55 a.m. ET

Commodity-driven countries

Russia (RSX) and Latin American countries such as Brazil (EWZ), Chile, and Venezuela are important commodity-exporting countries. Russia’s main exports are crude oil and natural gas. The main exports in the Latin American (ILF) countries include crude, petroleum, copper, and iron ore. The reversal in commodity prices boosted commodity-exporting countries, especially Brazil.

Brazil has been outperforming the developed economies (EFA) and other commodity-exporting countries. The iShares MSCI Brazil Capped (EWZ) recovered nearly 55% since January 21, 2016, to March 21, 2016. The developed market ETF (EFA), the VanEck Vectors Russia ETF (RSX), and the iShares MSCI Chile (ECH) recovered 9.5%, 34.5%, and 30%, respectively, during the same period. Major commodity producers in Brazil such as Petrobras (PBR), Gerdau (GGB), and Vale (VALE) got a boost from the reversal of the commodity prices. Now, we’ll just have a look at valuations of the different economies.

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Different economies’ valuations

The iShares Latin America 40 ETF (ILF) tracks the performance of Latin America. Currently, it’s trading at a PE (price-to-earnings) multiple of 12x. Brazil (EWZ) is trading at a PE multiple of 11x. Chile is trading at a PE multiple of 14x. Compared to developed markets such as the US (SPY) and Europe (VGK) that are trading at PE multiples of 17x and 16x, Latin America is trading at a discount. Among the Latin American countries, Brazil seems to offer relative value.

To learn more, read Stabilizing Commodity Markets: A Good Sign for Global Deflation.


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