Look to the Brazilian real estate stocks for evidence for the
wisdom of trading both long and short where emerging markets are
concerned.
[caption id="attachment_59078" align="alignright" width="300"
caption="An attractive outlook for Brazilian real estate."]
[/caption]
Year to date, a market like Brazil has been effectively dead
money to a buy-and-hold index investor, with the big funds like
EWZ
(
quote
) up a scant 0.5% over the last four months.
With the S&P 500 (
SPY
,
quote
) surging 9.5% over the same time period, casual traders may wonder
whether they would have been better served staying at home.
But drill down and remember that you can play both sides of the
trade by going long on the winners and selling the losers short
when they falter.
In Brazil, for example, the homebuilders are
cult stocks
for big players like Sam Zell and even Warren Buffett himself.
Rise or fall, these names are still widely owned by funds around
the world -- not so much because they've made money on an
end-to-end basis, but because the shorter-term swings have created
big opportunities to ride the cycle.
We can see this with PDG Realty, which sadly doesn't trade in
the United States. As its name implies, the company buys and sells
residential real estate throughout Brazil and into Argentina. It's
actually the biggest homebuilder and developer in the area,
bringing in about $3.6 billion a year in revenue.
And it's incredibly volatile. From the start of the year to
February 5, PDG shares soared 51%, then receded 49% after that.
This week, the stock seems to have bottomed out and is bouncing
back hard, to the tune of 10% in the last five days.
Traders who bought and held throughout the twists and turns
would be looking at a 20% loss year to date. But those who played
the inflection points -- easier than it sounds, admittedly -- could
have doubled their money.
We can see a similar move in PDG's smaller rival Gafisa (
GFA
,
quote
), which you can actually trade here.
Over the last four months, GFA is down 27% end to end. But from
January 1 to February 23, GFA provided long-only traders a nice 28%
surge, then gave the shorts 41% on the downside.
Whether you like that kind of swing long-and-then-short trade or
not, there are signs these stocks are getting their wind back. PDG
seems to have hit a double bottom.
And yesterday, GFA shares rebounded 7.7%, handily beating
everything else in the field.
