- Despite outperforming EM stock by almost 50% this year, Brazilian stocks remain cheap and look to be embarking on a sustained uptrend thanks in part to rising commodity prices.
- The iShares MSCI Brazil ETF still yields 5.9%, and this is likely to rise absent a major stock price rally.
- The MSCI Brazil still trades at a 43% and 67% discount to the MSCI EM and S&P 500 respectively on a trailing P/E basis, suggesting investors continue to anticipate a crisis.
- However, the country's macroeconomic fundamentals are far superior, and political outlook less fragile when compared to previous periods when assets traded at similarly discounted levels.
- The bulk of the rally since the January lows has been the result of the recovery in the Brazilian currency, and while the surge higher in U.S. bond yields poses a risk, there are still reasons to believe the BRL is fundamentally supported.
For further details see:
EWZ: Sticking With This Outperformer