The Global Bull Bets on Brazil

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

In a special alert that I sent out on Thursday, I recommended that you sell your UltraShort MSCI Emerging Mkts ProShares (EEV). I also moved most of your global stock market bets in the Global Bull Market Alert portfolio — specifically, the iShares MSCI BRIC Index ETF (BKF), Baidu, Inc.(BIDU), the iShares MSCI Hong Kong Index (EWH), and the SPDR S&P Emerging Markets Small Cap ETF (EWX) — from a HOLD back to a BUY.

Today, I am also recommending that you SELL WisdomTree Dreyfus Emerging Currency ETF (CEW) for a gain of more than 5% to make room for this week’s pick.

This week’s Global Bull Market Alert pick, Gafisa S.A. (GFA), Brazil’s second-largest homebuilder, places a bet on Brazil, one of the strongest-performing global markets this year, and one that you should definitely have exposure to as we enter the final quarter of 2009.

Brazilian homebuilders are a red-hot sector in a red-hot market. Shares of Brazilian homebuilders, such as Gafisa SA, have already doubled their share prices this year as policy makers cut interest rates to a record low and the government unveiled a 34 billion real ($18.8 billion) housing stimulus plan. Brazilian President Luiz Inacio Lula da Silva’s target is to build one million homes for low-income workers by 2011. As a result, Gafisa’s sales are expected to grow by 25% in 2010 as its revenue from low-income housing increases to as much as 60% next year, up from the current 50%.

Gafisa’s stock suffered a sharp sell-off a few weeks back when Bank of America downgraded the company on news that Gafisa’s rivals announced additional share sales this year, thereby heightening speculation Gafisa would follow. That turned out to be a false alarm. Gafisa’s CFO has said that the company may sell bonds in Brazil this year, taking advantage of record low interest rates to repay maturing debt. But it won’t dilute existing shareholders through a share offering. So the bullish case for the stock remains intact.

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So buy the Gafisa S.A. (GFA) at market today and place your stop at $25.50. If you want to bet on higher risk options, I recommend the March $35 calls (GFACG).

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) rose a solid 3.3%, after pulling back from a record high of $42 that it hit on Sept. 16. BKF is now a BUY. Tighten your stop to $38.50.

Baidu, Inc. (BIDU) jumped another 8.1% this week, briefly hitting a high of $408 in intraday trading. With Goldman Sachs putting a target price of $475 on the stock last week, BIDU is now a BUY. Tighten your stop to $355.

The WisdomTree Dreyfus Emerging Currency ETF (CEW) rose again this week as the U.S. dollar continued to weaken. With your Global Bull Market Alert portfolio now chock full of bullish positions, cocked and ready for a bullish Q4, I am recommending that you now SELL CEW for a gain of more than 5%.

iShares MSCI Chile Investable Market Index (ECH) jumped 3% this week, as ECH is approaching highs not reached since August. Other positions have more momentum, though. ECH remains a HOLD.

The iShares MSCI Israel Cap Invest Mkt Index (EIS) rose 1.2% this past week. UBS has joined Morgan Stanley and Barclays Capital in projecting positive growth for the Israeli economy this year, raising  its growth estimate from -0.8% to 0.3% for 2009, and from 2.7% to 3% for 2010. The economy grew at a rate of 1% in the second quarter, and thus technically emerged from recession. EIS is a BUY.

The iShares MSCI Hong Kong Index (EWH) rose slightly this past week. This is a momentum play that should do well between now and the end of the year. Hong Kong is a BUY.

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SPDR S&P Emerging Markets Small Cap ETF (EWX) rose another 3.4% this week, hitting $44.31 on Friday, yet another record high for the year. This leveraged play on emerging markets is back to a BUY.

First Trust ISE-Revere Natural Gas (FCG) rose 4.8% in its first week in the Global Bull Market Alert portfolio. Your bet on natural gas is a BUY.

The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) was flat again this past week, as its upward momentum continues to wane. Up close to 50% since you entered the position, this has been locked in a trading range for a while, and is near your stop of $37.70. Dr. Copper is a HOLD.

PowerShares Financial Preferred (PGF) rose 3.15% last week, as you received a dividend payout of 12 cents on Sept. 15. This position is recovering well. It remains a BUY.

Claymore/AlphaShares China Real Estate ETF (TAO) ended the week slightly lower. A bet on two highly volatile sectors, China and Real Estate, I am keeping TAO at a HOLD.

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Global markets continue to power ahead this week, leaving them at their highest levels in nearly a year. Investors are scrambling back into the markets earlier and quicker than I anticipated.

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