These are the sectors to watch out for
A sharp correction in Brazil after reports of a scandal by President Temer have raised questions about investments in the country. Some experts believe fundamentals of the country remain strong and investors should consider this as an opportunity to buy as the markets cool off. Mark Mobius of Franklin Templeton is bullish on the country’s financial and retail sectors. In a recent note he mentioned, “We are currently seeing value in almost every sector in Brazil, simply because the market is depressed in all directions. Most interesting to us are the banking and retail sectors.”
Meanwhile, Fidelity’s Will Pruett is waiting for interest rates to fall. He believes Brazil has immense growth potential and is optimistic on banks, consumer discretionary companies, and industrials. Brazil is also gradually turning into a fintech hub, as per CNBC. Further, Brazil remains a commodity rich country, and with commodity prices remaining stable, the country has immense growth potential. Ivo Luiten, a portfolio manager at NN Investment Partners, took the sharp correction as an opportunity to buy into telecommunications, education and healthcare stocks. These sectors fell 10-15% following the sell-off on May 18.
To assess the most attractive sectors in Brazil, we studied the holdings of the iShares MSCI Brazil Capped (EWZ). This ETF invests 35% of its portfolio in the financials sector, 17% in the consumer sector, 12.6% in the energy sector, and 9% in the materials sector.
In 2017, the three top performing sectors in Brazilian equities are:
- Cosmetics
- Transportation
- Machinery
The cosmetics sector makes up 0.6% of the EWZ ETF. Year to date, chemical stocks in the EWZ portfolio have returned 46% on average. Natura Cosmeticos (NATU3) has led returns in this sector. The transportation sector constitutes 0.7% of the EWZ ETF. Year to date, transportation stocks have returned an average of 43% in the EWZ portfolio. Rumo SA (RAIL3) has driven the high returns for the sector. The machinery space constitutes 1.2% of the EWZ ETF. During the year so far, this sector has returned 24.2%.
The worst performing sectors in Brazil in 2017 are:
- Electric
- Iron & Steel
- Oil & Gas
Year to date, stocks in these sectors have plunged 8.1%, 6.5%, and 3.7% respectively.
