Brazil Update – Breaking Out On The Local Line - InvestingChannel

Brazil Update – Breaking Out On The Local Line

Don’t look now but Brazil is back at the top of the 3m range that has clawed back from holding key 47K support and is now challenging 52K resistance on the Ibovespa. 

Image courtesy Wilson Dias/ABr http://agenciabrasil.ebc.com.br/ultimasfotos?p_p_id=galeria&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_col_id=column-1&p_p_col_count=1&_galeria_railsRoute=%2Fgerenciador_galeria%2Fgaleria%2Fshow%3Fid%3D936#http://agenciabrasil.ebc.com.br/galeriaimagens/images/fotos/6951/normal?p_p_id=galeria

Note that if you are playing along in USD terms you are underperforming by about 310 bps because of the fall in the currency. 

You have rallied 7% off the lows in $EWZ while the local is up a little over 10%.

Brazil

Part of the LT thematic in investing in Brazil (EWZ, quote) will be getting the currency right.  This is where you have lost almost 85% value since the lows in July 2011.  Our view is the currency has priced in 6% China GDP and $50 oil, and $60 ore.  Volatility will remain but barring more corruption scandals and major ratings downgrades, the Real is near lows.

ewz

We are playing Brazil via high quality banks trading a reasonable multiples to their own history: ITUB, BBD, and via consumer names that remain pegged to a consumer that will need consumer products and is spending on some discretionary items like electronics: CBD.

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