Market Overview

Time To Bank On Brazilian Banks?


Alright, so in Brazil we've got an emerging markets titan, the largest economy in Latin America, a place where deal-making and share offerings are on the rise and a growing middle class that is availing themselves of basic financial services products in growing numbers.

All of that should be good news for the Global X Brazil Financials ETF (NYSE: BRAF), right? Well, yeah, it should be. Home to 25 stocks, BRAF made its debut in late July 2010, so we're willing to give this ETF some time to grow and mature, but to this point, $9.4 million in assets under management (decent) and average daily volume (less than 3,000 shares, not impressive) aren't the type of statistics that leave one breathless.

Those statistics could change and change for the better as more investors awaken to the Brazilian banking story. As Bloomberg pointed out last week, Brazilian banks are starting to command a growing slice of their country's investment banking business and foreign firms are finding the competition and the barriers to entry more difficult to overcome.

Even Morgan Stanley (NYSE: MS) notes the strength of Brazilian banks in I-banking is impressive compared to other emerging markets, Bloomberg reported. More good news: Assets at Brazilian banks are expected to see a compound annual growth rate of 16% from 2011-2014.

Outstanding loans currently equal about 45% of Brazil's GDP and that's low compared with other emerging markets, the Wall Street Journal reports.

Or one can just take a common sense approach and say a lot of Brazilians are graduating from poor to middle-class and that means they'll want checking accounts, credit cards, car loans, etc. So why not take a look at an ETF where Banco Bradesco (NYSE: BBD), Banco do Brasil (PK: BDORY) and Itau Unibanco account for almost 30% of its weight?

For now, BRAF is confined to “underrated” status among LatAm ETFs, though that is a label that should be shed as investors look for hidden gems in the EM ETF space. Look at BRAF as a fine wine: It's going to take a little while for it to mature, but when it does, you'll be glad you bought the case (BRAF) at a discount because there could come a day when this ETF won't be the steal it is today.


Related Articles (BBD + BRAF)

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