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August 31, 2005
EWZ,the Brazil ETF, Wed., August 31, 2005, 6:12 AM
I doubt many traders have performance that exceeds the EWZ in the past three years. EWZ, is the ETF that represents the Brazilian equity market index. Yesterday I made reference to EWZ as petro-driven, somewhat like EWC (Canada). It is, but it is even more so broadly commodity-driven.
Let's look at the EWZ track record, admin details, and major stock components:
The three biggest sector components are Basic Materials (mostly steel and base metal mining) (34 pct); Energy (24 pct); and Financials (14 pct). So, Brazil's equity market is even more skewed to commodities than Canada's, which is financials (37 pct); Energy (24 pct); and Basic Materials (14 pct).
Fully 44 pct of EWZ is comprised of two companies " albeit world-class. The biggest is Petroleo Brasileiro (PBR), which is an integrated oil & gas company with a market cap of about $66 billion. The other, with a $39 billion market cap, is Valley of the Rio Doce Co. (RIO), one of the world's largest producers of iron ore, which is used to feed Brazil's huge steel companies, as well as some of China's.
Both PBR and RIO are on the Cara Global Best 100 Companies list, based on financial strength and operating results and comparative performance to other large cap companies in the world.
Another of the top holdings is Banco Bradesco (BBD), which is also on the Cara Global Best 100 Companies list, mostly because it is this fast-growing country's major banker.
Brazil represents a leading emerging economy, and a relatively stable one. There are over 30 large Brazilian companies listed on the NYSE, so finding financial data and corporate SEC filings is easy.
This long-term chart reflects the 66 pct returns of the trailing twelve months (ttm), and the almost 60 pct annualized returns of the past three years. Exclamation mark!
But this short-term (30-Minute data) chart reflects the up and down nature of the Brazil market. It was just a couple weeks ago that the Brazil Stock Exchange (Bovespa) took a header as charges of widespread corruption reached into the Office of the President, and the stock exchange, and so forth.
So this is Brazil. What's new?
Because of the wide price swings in this market, active traders love it. Right now, I'll say that it is over-priced generally, regardless of the strong economy and corporate earnings growth. I'd have my finger on the Sell button, getting set for any problems in the world oil markets, or steel markets, or banking scandals, or...
I think you get my point.
Longer-term, in an inflation cycle, the commodity producers of this country should be solid, and their key bankers (like Banco Bradesco) ought to be good ones. Later in an inflation cycle, however, Brazil is not the place for risk-adverse traders to be.
Posted by Posted by Bill Cara on August 31, 2005 06:12:09 AM | Category: Brazil , Cara Global 100 Best Companies , Commodities , ETF