A reader left a question asking what I thought about the iShares Emerging Markets Infrastructure ETF (EMIF), a client holding, now that Brazil won the 2016 summer Olympics and early reports say that about half the necessary facilities still need to be built.CNBC certainly devoted a lot of air time to whether or not the Olympics makes Brazil an even more compelling investment destination than it had previously been.
For a little bit of context I did one Olympic trade for clients in 2003, I bought Hellenic Telecom (OTE) ahead of the Athens games. The idea was similar to what was discussed yesterday about Brazil, money will be spent and there might be investment demand too. The trade worked out well but certainly was not a home run and of course it is possible that the stock going up had nothing to do with the Olympics; there is no way to know. I would add that I sold long before the Olympics actually started, Feb of 2004 if memory serves, which worked out well because shortly thereafter Greek stocks, or maybe just OTE, corrected lower somewhat. Again maybe the Olympics mattered or maybe they didn't.
There was a similar pattern with Chinese stocks in 2008. After a big run up, the stocks started correcting hard quite a few months before the games started, again no idea whether the Olympics were a driving factor or not. I made no attempt to trade the 2008 Olympics.
My exposure to Brazil has been the same for a long time, the core holding has been VALE for quite a few years and a couple of folks have a second name. The case for Brazil is very compelling, IMO. It's vast resources means it has stuff that the rest of the world needs and the revenue generated from selling that stuff makes the country richer which bodes well for Brazilian financial assets. It is a very simple thesis.
As far as how EMIF fits into this idea of the Olympics being an investment catalyst, Brazil comprises 22.45% of the fund as of October 1st by my count, the fact sheet is dated June 30 and appears to be very stale. Going by ticker symbols only (you can look the companies up if you want) the Brazilian stocks and their respective weightings as of October 1st were UGP 10.59%, CIG 5.41%, EBR 3.37% and CPL 3.08%. UGP is an oil services company and the others are electric utilities. These stocks would appear to be beneficiaries of any build out that might occur but seem unlikely to derive extra benefit from the actual building of new infrastructure.
That does not take away from EMIF in my opinion, the service providers are a very viable way into the theme (obviously I think this as clients own EMIF) but the builders are more like industrial companies. It might be worthwhile to check out who will be the builders or equipment providers. Clients own Caterpillar (CAT) for this reason. To bring up an old point about CAT, it is a beneficiary from not a proxy for IMO.
Anyone not owning Brazil but thinking about getting in; if reason number one is the 2016 Olympics I would not be a buyer. If the Olympics are further down the list as almost a nice little extra nugget then I think you are probably on better footing.
8 comments:
EWZ is a great way to invest in Brazil IMO as you get a lot of diversification.
If you want the growth in Emerging markets in general VWO is a great way to invest and then you get lots of diversification in lots of countries.
I find these a lot easier than an individual trying to pick winners and losers from individual stocks.
Aren't investors funny? (I include myself.) One day we're worried about protecting our portfolios from a lousy US jobs report and the next day we're wondering how to invest for an event that's six years away.
On second thought, maybe that's smart.
Roger, RW, Bill B and all,
I am currently 95% cash. I had written since July that my calculation high is S&P 1166, However, no one can calculate the exact number. Now we are at a turning point and my key indicator has turned around. I doubt that we will go any higher and we will see 900’s quite quickly. We will then retest the 1000’s and we will then head lower going past the 800-700’s level. Roger being totally in cash and trading in and out has been the best strategy for me. The last trades that I made 1) hans – in at 31’s out at 37’s 2) mco – in at 23’s out 25’s 3) mco – in at 21’s out 21’s. So as you can see I sleep very well at night since I am in cash. When I feel that the market is going up I position for short term profits. So I have accrued incremental increases without any risk. I feel the next big move for the market is down or we are close to a top, if we have not made it. However, in this business one needs to keep very flexible, so if the market is going up for an additional 140 S&P points I am prepared to take such advantage. However, I will start shorting some stocks that I think look shaky. But I also have a list for longs to act on buy signals. Mike C. I have just looked at decision point and he said that this is a normal correction before another leg starts up. I do not agree with such view, since, we are at a final top for the next big move down. Even some big bearish services have recently turned bullish and this has a smell of a top. Another, the economic indicators, Consumer, … have started to turn down.
Best
Jeff From Milan, Italy
Well, it should be a wild Olympics in 2016. The New Yorker has a long article on Rio and reports on the drug gang scene in Rio. The city had 5,000 murders last year, most unsolved. The Rio police reported killing 1188 people for resisting arrest. With the countdown begun (7 years), Brazil has a lot of work to tidy Rio up before the games begin!
Jeff,
Your analysis may be good or it may be bad. Hard to tell I have never seen your models.
Before getting to excited about how well you have done since March please remember this rally has been so strong and so broad that a monkey throwing darts at a newspaper to pick stocks could have made a ton of money.
Personally I have been a bull for a number of months and keep reading about people calling a top. We are still down 34% from the high of 1565 on the S&P. There is nothing stopping this rally from continuing and there is no guarantee it has not ended. But, I would not hold to much faith in models that have performed well just this year.
All the BRIC countries have to turn the internal consumption corner but they all have such large populations living in poverty it's sometimes difficult to imagine that happening, at least any time soon.
In the case Brazil and a city like Rio the vast majority of murders occur in the slums but, unlike most cities, the slums can be right next door to a wealthy neighborhood with the result that homes in the latter are literally fortresses, many with armed guards to match. A family acquaintance who worked there had an armed guard on the grounds, a panic room and a company-provided armed convoy to take his children to and from school (primarily to fend off endemic kidnap-for-ransom attempts by gangs).
Poverty has many hidden costs but Brazil will see to it that protections are in place in Rio during the Olympics, possibly by walling off some areas and flooding the rest with national police, so I don't think the liklihood of serious upset is great. Longer term Brazil must remain of interest to investors -- it does seem to be turning the corner and diversifying economically -- but most would probably be better off using a broader instrument to access its markets.
As to Jeff's point, I have never been able to closely time and, in an environment like this, that probably goes double so I just play the odds. As far as I'm concerned we have been in a credit driven, Ponzi economy for the past decade and, after some big pulses, are fully engaged in full deleveraging with the government keeping the gas coming (for now) to buy some time. A big slug of that gas is being diverted into bond markets with leftovers adding life to the smaller equity markets and, while that has certainly been worth playing, the lack of sponsorship, heavy insider selling and bond buying provide a tell: There are few true believers out there so prudence dictates that assets that can't move fast should be guarded with tight position sizing and stops for the rest. JMO
Hello Roger,
Our two blogs are often connected via the WikiInvest Wire Plugins on our two websites. I was curious to see though if we could now connect our websites directly.
I run HedgeFundBlogger.com, it is the #1 most popular website on the internet on hedge funds with over 3,600 articles and interviews posted to the blog. If you have a minute to check it out and see if we could link together that would be greatly appreciated. Thanks for your time, happy blogging.
- Richard
Richard C. Wilson
Hedge Fund Group (HFG)
HedgeFundBlogger.com
p.s. My background is detailed here: http://RichardCWilson.com
Anon 8.18,
I have made money in 2007, 2008, 2009. What makes money and the difference is time and price. Before 2007 I did not do anything with any markets. Before that it was 1988. 1988 and before I was young and foulish. The reason that I have posted is that I have gotton lots of help from this blog. Well, the Yamada incident and the fact that I am almost new to this game.n Thank Roger for this blog and thank the participants that post thoght provoking material. Like to thank Bill B, RW, Mike C., Steve Drone and many others. I have grown very quickly and perhaps it would have taken me decades to be at this point. As Roger said before it is the process that is important. The gripes that I have that I did not put as much faith in my work as I should have. But that comes with time. So, Thank you Roger, Bill B, RW, Mike and Steve.
Happy trading and investing,
Jeff from Milan, Italy
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