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Stadium Readiness Puts Brazil Infrastructure ETF in Focus

May 13, 2013 3:47 pm
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The EGShares Brazil Infrastructure ETF (NYSE: BRXX) could be in a curious near-term position as Latin America’s largest economy struggles in preparation efforts for its hosting of the 2014 World Cup.

In early April, BRXX was highlighted as one Brazil ETF that might offer some near-term potential for investors.

Since then, the ETF has disappointed with a loss of nearly 2.7 percent. Now, BRXX may be at a crossroads. The Federation Internationale de Football Association, or FIFA as its most often called, is concerned about Brazil’s readiness to host one of the world’s largest sporting events. Unfortunately, speculation about football-crazy Brazil’s ability to host the World Cup have crept up in the past.

In November it was reported that the state of Rio de Janeiro was facing a cash crunch. At the time, Brazilian policymakers voted to give the state $2 billion in oil and gas royalties, but the Rio needed $13.5 billion for World Cup-related infrastructure.

A recent test event in a Rio stadium was canceled and FIFA is concerned about the readiness of stadiums in Cuiaba, Manaus, Natal, Curitiba, Porto Alegre and Sao Paulo, according to Zee News. Brazil is slated to play England on June 2 in a friendly match-up of two international football giants, but even Brazil’s national coach, Luiz Felipe Scolari, recently voiced concern about the readiness of the Rio stadium to host the match.

“FIFA is for sure concerned as it is vital that the firm deadline of December 2013 be kept (ahead of the World Cup). The host cities concerned, the federal government and stadium owners have committed to this delivery date and acknowledged that for the FIFA World Cup no compromises can be made in order not to jeopardize the successful staging of football’s flagship event,” Zee News reported, citing a FIFA spokesman.

Those comments may leave investors wondering what is next for BRXX. While it is not likely that Brazil will lose the World Cup, it is worth remembering that in advance of South Africa hosting the 2010 version of the greatest football tournament, speculation was rampant about that country’s readiness. Some observers speculated South Africa could lose the World Cup to Germany or another country that had adequate infrastructure to host an event of this magnitude on short notice.

Ultimately, South Africa did host the 2010 World Cup, spending more than $3 billion in the process.

A tab like that could boost BRXX, however, this ETF has a way of confounding investors. In August, Brazil announced a massive $66 billion infrastructure program aimed at bolstering the economy. BRXX has fallen about nine percent since that announcement was made.

Brazil has until December to convince FIFA it is ready for the World Cup. BRXX has an index yield of 4.35 percent, according to EGShares data, indicating that there is some compensation for investors willing to roll the dice on Brazil’s World Cup dreams becoming reality.

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