In a familiar approach seen in the U.S. and China, Brazil is
employing stimulus measures to boost its sagging economy. The
largest Latin American economy reported first-quarter GDP growth
of just 0.2 percent, hardly on par with what investors expect
from an emerging market and well below the 0.5 percent growth
economists expected.
President Dilma Rousseff has rolled out an array of stimulus
projects aimed at suppressing Brazilian unemployment (already low
at 5.8 percent), moves that have her approval rating resting near
60 percent despite the country's economic slowdown,
according to the New York Times
.
To this point, Brazil's stimulus measures have yet to bare
fruit for investors in ETFs such as the iShares MSCI Brazil Index
Fund (NYSE:
EWZ
). The largest Brazil ETF by assets, EWZ has tumbled 11.4
year-to-date and 22.3 in the past 90 days. Increasing concerns
about an economic hard landing in China, Brazil's largest trading
partner, coupled with the slack performance of state-run oil
giant Petrobras (NYSE:
PBR
)
have plagued EWZ
.
Given EWZ's exposure to Brazil's commodities-driven export
story, investors should consider more domestically focused funds
as a way of potentially benefiting from the country's stimulus
plans.
EGShares Brazil Infrastructure ETF (NYSE:
BRXX
)
Much has been made about global infrastructure spending. In 2011,
a Bank of America Merrill Lynch report fanned the flames of this
investment thesis by saying
select emerging markets would spend up to $6
trillion on infrastructure projects over the next three years
.
Brazil should be among the nations spending heavily on
infrastructure in the coming years. BRXX is widely viewed as a
play on Brazil hosting the 2014 World Cup and the 2016 Summer
Olympics, but there's more. As the New York Times reported, so
many Brazilian infrastructure projects have been approved at the
same time, that just a fifth of the $7 billion budgeted for
highway projects in 2012 has been spent.
Global X Brazil Consumer ETF (NYSE:
BRAQ
)
While economic growth is cooling in Brazil, it is worth noting
that consumer-related deal-making
is flourishing, indicating companies are betting
on a resurgent Brazilian consumer
. Incomes are rising and interest rates are low, two fundamental
factors that support a bullish outlook on the Brazilian consumer
and BRAQ.
There is a bear case, though. Amid access to easy credit, the
Brazilian consumer has already spent. Now he/she is looking at
elevated personal debt and is paring spending to reduce that debt
burden.
First Trust Brazil AlphaDEX Fund (NYSE:
FBZ
)
The First Trust Brazil AlphaDEX Fund debuted last April as a
potential rival to EWZ. That rivalry has yet to materialize, but
it should because FBZ's weighting methodology and the
index it tracks have generated superior
performance
.
The biggest risk with FBZ is a 22.2 weight to materials
stocks, but on the upside, Petrobras is not nearly as prominent
in FBZ as it is in EWZ. In addition, FBZ is 44 percent allocated
to more the conservative consumer staples and utilities sectors.
Year-to-date, FBZ has outperformed EWZ by 500 basis points.
For more on Brazil ETFs, click
here
.
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