While US equity markets have suffered over the past few months, the emerging markets have fared even worse. Of all the major emerging markets, Brazil may offer the most value right now. The iShares MSCI Brazil ETF (ticker: EWZ) is down over 21 percent in 2011 and recently traded at its lowest level in over two years.
EWZ has a 2012 P/E estimate of 7.6 and a 2011 price-to-book ratio of 1.2. It’s trading at a substantial discount to the S&P 500 even though it is growing at nearly twice the rate of the US. Also, Brazil will be getting the FIFA World Cup and Summer Olympics, which should start to provide an infrastructure lift similar to China before the Beijing Olympics.
Brazil is also rich in natural resources, especially oil, and has low unemployment and a business-friendly political structure. I look for the valuation differential between EWZ and the S&P 500 to narrow over the next few months, as investors return to a somewhat higher level of risk appetite. I look for EWZ (closed today at $61.32, up $0.81) to be at $65.50 by March, 2012.
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