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Brazil's ETF and Economy Are Just Getting Started 6 comments

by: Tom Lydon November 18, 2009 | about: BRF / EWZ
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Brazil’s domestic industries are showing a quick rebound. The economy, along with related ETFs, may be only just beginning to reflect a recovery in the emerging market.

  • With a surge in domestic consumption bolstered by optimistic Brazilians, low unemployment and increased wages, Brazil’s economy is projected to grow 9% for the fourth quarter, comments Martin Denholm for Investment U.
  • For the full year, Brazil’s GDP is projected to fall between 1% and 1.5% after a major blow to its export market, but the market has shown signs of revival.
  • Deputy Trade Minister Welbar Barral expects foreign direct investment to grow 33% in 2010. Moody’s already brought Brazil’s credit rating to investment grade back in September.
  • Labor Minister Carlos Lupi stated that Brazil’s economy added 230,956 payroll jobs in October, bringing the number of jobs added to more than 1 million this year, reports Isabel Versiani for Reuters. He also expects the number of new jobs will rise to 2 million in 2010.
  • Lupi projects the economy will grow 2% in 2009 and 7% to 8% in 2010 while analysts estimate growth of 0.2% in 2009 and 5% in 2010.
  • iShares MSCI Brazil Index (NYSEArca: EWZ): up 121% year-to-date

  • Market Vectors Brazil Small Cap (NYSEArca: BRF): up 35.1% in the last three months

Max Chen contributed to this article.

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This article has 6 comments:

  • brazil finance ministry's decision to tax foreign capital purchases of brazilian stock (2% direct, 1.5% ADR) has to adversely affect EWZ, no?
    Nov 18 04:52 PM | Link | Reply
  • I was wondering the same
    Nov 18 05:12 PM | Link | Reply
  • Socrates may have info that I missed. I had heard that ADRs would be largely unaffected, but after studying this a bit I can see that newly created ADR shares are likely subject to some kind of tax.

    Does Socrates have a reference? I read Mr. Lydon's piece on the Brazil tax but did not find it helpful.

    I was considering an old favorite mutual fund PRLAX, as an option. While they will pay a tax too, the fund has a 2% back end load only if you sell within 90 days of the purchase. This would at least reduce the fund churn & hence the net tax effect.
    Nov 18 08:13 PM | Link | Reply
  • Sure seems like it would have a high negative effect. I am not selling out completely just yet, but keeping a very close eye on it over the next few days.


    On Nov 18 04:52 PM socrates+ wrote:

    > brazil finance ministry's decision to tax foreign capital purchases
    > of brazilian stock (2% direct, 1.5% ADR) has to adversely affect
    > EWZ, no?
    Nov 19 12:46 AM | Link | Reply
  • Brazilians want investors, not hot money zipping in and out of their economy at electronic speed. Perhaps the tax on equities will encourage traders to rely more on options. Momentum plays on BRF or EWZ are probably a bad idea anyhow. The tax means nothing to me.
    Nov 19 12:04 PM | Link | Reply
  • I sold out about 15% of what I had in EWZ, not so much because of the tax, but because I am seeing more news blips about the huge rise in the REAL vs USD exchange rate this year, up around 35%. Still holding most, but took some profits off the top.
    Nov 19 01:42 PM | Link | Reply
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