Well, they finally did it. The constant focus on this crazy election actually drove me out of the country. We'll see if I ever go back, but being bombarded with CNN in airport waiting areas has to have been one of Dante's seven levels of hell.
Right now I am in Brazil, and it remains a very intriguing economy. The last time I was here was nearly 25 years ago on a trip to see auto plants, and Sao Paulo certainly hasn't shrunk since then.
The IBovespa index is off slightly today and now sits just above 100,000, a solid recovery from the level near 60,000 that was hit at the Covid bottom in May. Unlike the S&P 500, though, the IBovespa has not come close to retracing its early-2020 highs, which pushed the index value to the 120,000 level.
Emerging markets carry a degree of risk that today's Fed-coddled, Nasdaq-addled hedge fund managers just don't seem to grasp. Why look beyond the West Coast?
Well, the reason is Brazil's population of 210 million. That population plus the country's strategic location as the entrepot to not only the Mercosur region, but really all of South America, makes Brazil impossible to ignore.
Brazil's GDP per capita was reported at $8,900 in the most recent figures (2018,) a lower level than both Mexico and China, and nearly 90% below the reported figure for the U.S of $62,794 for the same period.
So we are looking at a crouching tiger here, and that's why, in addition to election burn-out, I made the trip down here. There are plenty of private wealth clients here for me to pitch, and some interesting corporate deals, as well.
Characteristic of an emerging economy, the two largest components of the iBovespa are materials companies. In this case the "Big Two" for the Brazilian stock market are mining giant Vale (VALE) and Petrobras (PBR) . Both have listed ADRs and there is also an iShares MSCI Brazil ETF (EWZ) , if you want to play the country that way. EWZ has been a brutal performer this year, posting a 36.1% decline year-to-date, so tread carefully there.
But situated here amongst the urbane cosmopolitan Paulistas, the iron ore mines of Vale and the offshore drilling platforms of Petrobras seem very far away. Who is going to capture the heart of the Brazilian consumer as per capita GDP rises to the level at which major purchases (cars, houses, and today even smartphones fit that description) are made?
I came here to avoid politics, but darn it if I didn't see a political poster first thing on my walk this morning. It pictured some local lackey - I believe he is the governor of Sao Paulo state - being led on a leash by Chinese leader Xi Jinping. That's the way to play Brazil.
When I was at the airport the first ad I saw was for Vivo, which is a lower-tier Chinese smartphone brand not offered in the States. Also, I always check out the "whips" anywhere I go in the world. While VW (VLKAF) and Fiat (FCAU) are clearly still the top dogs in this market, as they were when I came here in the 1990s, I actually saw two models produced by Chinese automaker Chery.
China Inc. knows how to make products to hit a low price point - though Foxconn also makes $1,200 iPhones for Apple (AAPL) there -- and that's probably the ultimate winning play here. Though it's in the Western Hemisphere, Brazil's emerging consumer is a natural target for China Inc. This is especially significant since China is the number one consumer for Brazil Inc.'s iron ore and also a frequent destination for Petrobras oil exports, as well.
The Internet has put the power of information in the hands of the global consumer. Buying a country ETF like Brazil's EWZ is a good way to play that, and certainly is not expensive after a brutal performance thus far in 2020.