The Time Is Right for This Undervalued Emerging Market Play
Amanda Heckman|March 5, 2022
As the Russia-Ukraine conflict carries on, smart investors are looking for the best places to park their money for profit.
Sanctions have frozen Russian exports and sent the prices of many commodities soaring. But along the way, a new opportunity has emerged.
It’s a major commodities player… and it’s undervalued.
Better still, it just got a huge boost from one of the biggest index fund creators in the markets.
Headwinds are clearing for this emerging market leader… and investors should pay attention.
Surging Prices
Brazil has had its troubles over the past few years. Inflation is running rampant… the political situation is touchy… and growth has been flat.
But that’s all changing… and fast.
Despite its troubles, Brazil remains a major commodities producer. It exports agricultural products such as coffee, sugar, soybeans, cotton and wheat. It’s also a top oil exporter.
That’s where things are really looking up for the country. Thanks to sanctions on Russia, global commodity prices are on track for their biggest weekly rally in more than 50 years.
The Bloomberg Commodity Spot Index jumped 8.6% this week. Wheat futures in Chicago shot above $12 a bushel, the highest they’ve been since 2008. Other commodities, including aluminum and coal, have also soared.
Oil prices have surged to well over $100, reaching highs not seen since 2008. Brent crude flirted with $120 a barrel on Thursday, its highest price since May 2012.
These inflated prices are sure to give Brazil’s economy a boost.
Influx of Cash
Brazil is also getting a boost in the markets.
Major market index creator MSCI kicked Russia out of its hugely popular MSCI Emerging Markets Index. The money allocated to Russian equities needs a new home… and it’s expected that some $1.3 billion will be moved into Brazilian equities (according to global investment bank Itaú BBA).
That’s on top of the $14 billion that’s been added to Brazilian stocks since December. According to Bloomberg…
Brazilian assets are among investors’ favorites this year due to the nation’s high yields, cheap stock valuations and the rally in commodity prices. The Ibovespa index is the second-best performer in the world this year, up 21% in dollar terms, and the currency has strengthened 11%, more than any other.
Indeed, in just the past month, the iShares MSCI Brazil ETF (EWZ) is up nearly 7%, while the S&P is down 2.5%.
And even after this rally to start the year, Brazilian stocks are still cheap. Brazil’s Ibovespa index (a benchmark index, like our S&P 500) trades at 7.7 times forward earnings, below its 10-year average of 11.7 times earnings.
Value investors, take note.
Pick One
But what about those “touchy” Brazilian politics? That’s where our final piece falls into place…
This year, Brazil will hold a presidential election. Neither candidate gets high marks, but regardless of who wins, the end of the political cycle will at least put any outstanding uncertainty to rest.
The markets will likely breathe a sigh of relief once the elections have passed.
So we’re looking at a market that is in a commodity rally, is undervalued and is at the tail end of an election cycle.
There’s plenty of room to pick up shares on the cheap while Brazil sees ever-stronger tailwinds this year.
Amanda Heckman
Amanda Heckman is the editorial director of Manward Press. With unrivaled meticulousness, she has spent the past dozen or so years – give or take a few sabbaticals – sharpening Andy’s already razorlike wit. A classically trained musician and a skilled writer in her own right, Amanda takes an artistic approach to the complex world of investing. Her skill has led her to work with numerous bestselling authors, award-winning financial gurus and – lucky for us – the fine folks at Manward Press.
