Ten Reasons to Invest in Brazilian Bank Stocks

Posted by David Hunkar on 1 August 2010, 8:42 am

The weekend edition of The Wall Street Journal has an article that discusses some of the reasons to invest in Brazilian banks now. The following are some of the key points from the article and also from Banco Central Do Brasil:

Outstanding mortgages amount to just 3% of GDP compared to 18% in China and 72% in the U.S.
IMF’s projects a GDP growth of 7.1% this year
About 22 million people have joined the middle-class bringing the total middle-class in the country to more than 50% of the population
Retailers try to push consumer goods such as appliances to the middle-class on monthly installment plans thus boosting credit growth
Compared to the U.S. unemployment rate of 9.6% as of June this year, Brazil’s unemployment rate is just 7%
Public-sector debt is about 40% of GDP
The average capital-adequacy ratio of Brazilian banks is 18.3% as of March this year compared to 10% in China and 14.4% in U.S.
P/E ratios of large banks such as Itau Unibanco Banco Holding(ITUB), Banco Bradesco(BBD) and Banco Santander (Brasil)(BSBR) look attractive compared to other emerging market banks
Credit growth continues to rise for both the corporate and personal sectors with consumer lending experiencing a stronger increase
Retail sales of vehicles, motorcycles and consumer goods is increasing at a steady pace

The three Brazil bank ADRs that trade in the U.S. markets are:Â Banco Bradesco(BBD), Itau Unibanco Banco Holding(ITUB) and Banco Santander SA (Brasil)(BSBR). Banco Bradesco issued a 10% stock dividend last month. Another 10% stock dividend was issued in January this year. Both Bradesco and Itau Unibanco pay a small monthly cash dividend. For investors looking to gain exposure to other Brazilian banks and financial-sector related companies, the recently launched Global X Brazil Financials ETF (BRAF) offers a simple and easy way to invest in them.

Which is Better for Investment – Russia or China?

Posted by David Hunkar on 31 July 2010, 6:38 pm

China has been the preferred destination for emerging market investors for many years now.However this year Chinese equities have not performed well. The Shanghai Composite Index fell 27% in the first six months. Despite Chinese stocks rallying in recent weeks, the index is still down 19.5% year-to-date. In terms of performance over a ten year period many other countries have easily beat China.

The chart below shows the performance of MSCI Russia vs. MSCI China over 10 years:

Source: Trustnet
Note: The Total Return shown is in British Pounds

Hence Russian equities have performed better than Chinese equities over a decade.

The two country-specific ETFs available for Russia are SPDR S&P Russia ETF(RBL) and Market Vectors Russia ETF(RSX). Since its launch in 2007, RSX has been highly successful. The fund has an asset base of $1.8B and the gross expense ratio is 0.80%. The energy sector accounts for about half of the fund portfolio with holdings in oil companies totaling 39.5%. The fund’s share price is down about 10% YTD. Since its inception in March this year, the Russia ETF(RBL) from State Street has not been successful in attracting assets. The total net assets of the fund is just $4.36M. Similar to RSX, this fund is also heavily weighted in the energy sector.

Despite the better performance, investors must be cautious in putting their money in Russian stocks as they can be highly volatile. Among global indices, the Russian market fell heavily during the global credit crisis. As a commodity-based economy, the Russian market is highly dependent on the prices of commodities especially oil.

Some of the ETFs that offer exposure to Chinese stocks are: FTSE/Xinhua China 25 Index Fund (FXI), SPDR S&P China ETF (GXC) PowerShares Golden Dragon Halter USX China Portfolio (PGJ), Claymore/AlphaShares China Small Cap Index ETF (HAO), Claymore/AlphaShares China All-Cap ETF (YAO), Global X China Financials ETF (CHIX). The FTSE/Xinhua China 25 Index FundÂ (FXI) from ishares is the largest China-specific ETF with an asset base of about $8.2B. The ETF tracks the 25 large-cap Chinese companies in the FTSE/Xinhua China 25 Index. Financials account for about 48% of the fund’s portfolio.