Brazil Returns


Throughout 2009, in April, July and September, we have looked at the potential of Brazil, Brazilian bonds and the Brazilian stock market.

In the first nine months of 2009 Brazil’s stock market was one of three top performing markets, up 105%.  Indonesia was up +115.2 % and India +88.3 %.

Now there are three more reasons… value, the Olympics and the falling and failing US dollar… to examine the Brazilian market more closely.

I’ll explain more about the Olympics and the dollar in a moment.

First… value.

To get a better feel of which markets offer the best value, each quarter we review emerging markets as valued by Michael Keppler. If you are a new reader and are not familiar with Michael’s work, please see Keppler’s story here.

Here are excerpts from  Keppler’s Emerging Market Evaluation for October 2009.

After having recorded their highest ever quarterly returns in the second quarter 2009, Emerging Markets again  posted strong gains for the third quarter, which ranks as the ninth best in the history of the MSCI Emerging Markets Index:

MSCI EM Total Return Index
Quarter ending Change in US Dollars (%)
June 2009  34.7
December 1993  32.6
March 1991  29.2
December 2001  26.6
December 1999  25.5
June 1999   24.4
June 2003   23.3
September 1989  22.8
September 2009  20.9
September 1994  20.8

The MSCI Emerging Markets Total Return Index (December 1988 = 100) advanced 20.9 % in U.S. dollars and 16 % in euros last quarter.

Year to date, the MSCI Emerging Markets Index is up 64.4 % in U.S. dollars and 56.4 % in euros.

Of the three regional indices, Asia gained 19.6 %, Europe Middle East and Africa (EMEA) was up 20.4 % and Latin America gained 24.7 % during the third quarter 2009.

During the first nine months of 2009, Asia, EMEA and Latin America are up 62.7, 53.4 and 81.2 percent, respectively.

Performance numbers are in US dollars unless mentioned otherwise.

Twenty-one markets were up last quarter, only one market, Morocco, declined. Peru (+44 %), Hungary (+42 %) and Indonesia (+37.8 %) had the most impressive returns, while Morocco (-6.7 %), Chile (+5.6 %) and China (+7.8 %) came in at the bottom of the performance range. Year-to-date, all markets covered here came in with positive returns.

Leading the pack during the first nine months was Indonesia (+115.2 %), followed by Brazil (+102 %) and India (+88.3 %). Morocco (+1.9 %), Poland (+25.4 %) and Israel (+35 %) had the lowest year-to-date returns.

In the third quarter 2009, the Emerging Markets Top Value Model Portfolio, which invests according to the Top Value Strategy and assumes index returns for each national market included in the strategy, gained 27.5 % in US dollars and 22.4 % in euros, outperforming the benchmark by 6.6 percentage points in US dollars and by 6.4 percentage points in euros.

Year-to-date, the Emerging Markets Top Value Model Portfolio advanced 67.6 % in US dollars and 59.4 % in euros, outperforming the benchmark by 3.2 and 3 percentage points in US dollars and euros, respectively.

There were two changes in our performance ratings last quarter: The Czech Republic was upgraded to “Buy” from “Neutral” and Israel was upgraded to “Neutral” from “Sell”.

The Top Value Model Portfolio now contains the nine “Buy”-rated markets Brazil, Czech Republic, Egypt, Hungary, Poland, Russia, Taiwan, Thailand and Turkey at equal weights.

According to our performance ratings, these markets offer the highest expectation of long-term risk-adjusted returns.

Keppler’s SELL CANDIDATES (Low Value)  are now: Chile,  Colombia, India,  Korea, Mexico, Morocco.

NEUTRALLY RATED MARKETS Argentina, China, Indonesia, Israel, Jordan,  Malaysia, Philippines, Pakistan, Peru, Russia, South Africa, Sri Lanka, Venezuela.

A multi currency update in August said:

It is unusual for a market to rise all the way from sell to buy as Brazil did this quarter. This is in keeping with our thoughts on Brazil Distortion Thoughts published in  April and June.

This suggests that systematically investing in good value shares on bad news could produce extra returns down the road for value investors now now.

The reverse an be true. With this type of good news… be careful. The lack of fundamentals economic support is not there.  See a warning here.

This advice remains. The upside is that Brazil is still a good value market.

The downside is that it has risen 102% in none months and emerging markets are at risk of sudden downturns created by panic that leads to  unwinding of risk leverage.

Failing US Dollar

Yesterday’s update looked at how the US dollar is not only falling but failing. The world wants to stop using the greenback as its reserve currency (quite correctly).   The world is looking for a new reserve currency and as yesterday’s update explained… there is no acceptable alternative at this time.

There is a chance that there will be a reserve currency basket that relies heavily on the euro… Chinese yuan… and Brazilian real.

If this theory turns into fact there will be increasing upwards pressure on the Brazilian equity market.

We are reminded of this fact by recent Olympian events in Copenhagen.

Fingers have been pointed to blame the Obamas, Oprah… the City of Chicago’s team.  I do not have a clue but do believe that the fast elimination was, in part, the rest of world showing  that it is fed up with US policies and the falling buck.

So the message was delivered and focus instead will be on… Brazil as previously it was on China.  This is a message we should not ignore.

Gary

Overall market value is just one of many filters we should use when we review value. The seven steps we use in our reviews include

#1: Are the shares traded in a good value market?
#2: Does the share trade at fair Price to Earnings and Price to Cash Flow ratios?
#3: Does the share pay a good value dividend?
#4: Do the share have a good value relative to their previous price?
#5: Does the company have rising earnings?
#6: Has the share price been rising?
#7: Is the company’s management good and is their product or service line in a wave of the future

Michael Keppler also reminds investors not to misinterpret the investment analysis implicit in the Country Selection Strategy. A country is BUY-rated based on the valuation levels reflected in the MSCI benchmark index of country. A BUY rating therefore does NOT imply that any stock in that country would be considered an attractive investment.

To invest according to the Country Selection Strategy it is necessary to
construct diversified, risk-controlled, representative country portfolios in
every BUY rated country, weighting each country approximately equally in the
overall portfolio. It is not appropriate to instruct a stockbroker to simply to select stocks in the BUY rated countries.

For more details on Keppler’s analysis, contact Roderick Cameron at 1-212-245-4304 or email roderick.cameron@kamny.com

Here is the balance of our 20o9 course and tour schedule.

Oct. 21-24 Ecuador Import Export Tour (SOLD OUT)

Oct. 25-26 Imbabura Real Estate Tour

Nov. 9-10 Imbabura Real Estate Tour

Nov. 11-14 Ecuador Coastal Real Estate Tour

December 6-8 Blaine Watson’s  Beyond Logic & Shamanic Tour

December 9-10 Imbabura Real Estate Tour

December 11-13 Ecuador Coastal Real Estate Tour

In 2010 Merri and I will personally teach on five dates.

Arrival dates are always one or two days earlier. Please double check with us before booking flights.

Feb. 11          Super Thinking + Quantum Wealth Florida
Feb  12-14     International Investing & Business Florida
Mar. 11-14     Super Thinking + Spanish Course Florida
June 24         Super Thinking + Quantum Wealth North Carolina
June 25-27    International Investing and Business North Carolina
Oct.    7           Super Thinking + Quantum Wealth North Carolina ($749)
Oct.  8-10      International Investing & Business North Carolina ($749)
Nov.   4-7       Super Thinking + Spanish Course Florida

We hope you will join us.


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