The Brazilian market has been on a run that few countries can match. Among the world's markets only Egypt has done better over the past five years. And in the past 12 months Brazil came in third, trailing only China and Peru. That doesn't mean the Brazilian boom is over. In fact, says Arjun Divecha, manager of the GMO Emerging Markets III fund, there are plenty of reasons the bull market should continue into 2008 and beyond. For one thing, the country's high interest rates are likely to drop. While inflation has been running at around 4%, benchmark interest rates stand at 11.25%. "Those rates are going to come down," Divecha says. "It's almost inevitable." That should help Brazilian stocks in a couple of ways. Lower rates would stimulate spending and consumption, further fueling the country's $1.7 trillion economy. At the same time, lower rates would mean that investors who can currently find attractive returns elsewhere would increasingly put their money into stocks.
The best way to get in on the action, Divecha suggests, is to buy the iShares MSCI Brazil index, an exchange-traded fund that holds 56 Brazilian stocks. (Exchange-traded funds, or ETFs, are similar to index mutual funds, but you buy and sell them like stocks.) The materials sector, including the recently rechristened mining giant Vale, makes up a hefty 33% of assets. Energy companies such as
Petrobras account for another 25%. Financial firms such as Banco Bradesco also compose a large chunk of the fund, 16%.
Last updated December 14 2007: 11:42 AM ET
