The Global Bull is Back in Brazil

Nicholas Vardy

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

My strategy of moving back into the markets with Mechel (MTL) and ICICI Bank (IBN) paid off with the latter soaring 8% last week. The SPDR S&P Emerging Markets Small Cap ETF (EWX) and the iShares MSCI Turkey Invest Mkt Index (TUR) jumped as well. I will be visiting two of the country’s whose markets I have recommended in Global Bull Market Alert — Turkey and Israel — over the next 12 days as part of an investment cruise on the Mediterranean.

This week’s Global Bull Market Alert revisits one of the hottest markets on the planet, Brazil, through the Market Vectors Brazil Small-Cap ETF (BRF).

Brazil, as its place on the cover of this week’s Economist magazine confirms, is the flavor of the month in emerging markets. Brazil recently won the right to host the Olympics in 2016. This will raise its profile much like the Beijing Olympics did for China. Investors are pouring in. Its currency, the real, has gained 50% against the U.S. dollar since December. The economy is firing on all cylinders, posting an 8%-10% growth in Q3. Overall, Brazil’s economy will grow by 5% in 2010.

With the market already up 76.9% in local currency terms this year, betting on Brazil today is clearly a momentum play. That’s also why I am recommending a small cap ETF, which has outperformed its large cap ETF counterpart this year. Brazil’s biggest enemy is likely to be its own hubris — getting too cocky for its own good. But before it does, I’m betting the market has further to go. After all, it went up almost 6-fold in dollar terms during its last bull run starting in 2003.

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So buy the Market Vectors Brazil Small-Cap ETF (BRF) at market today, and place your stop at $38.50. For potentially bigger upside, buy the April $45 call options (BRFDI) Full disclosure: This is a position that I hold on behalf of my clients at Global Guru Capital.

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) rose 3.35% this past week, as the big four BRIC markets resumed their upward trend. With this position just barely off of the high it hit on Oct. 19, BKF remains a BUY.

The iShares MSCI Chile Investable Market Index (ECH) jumped 2.83%, closing at a high for the year of $51.96. One of the steadiest players in emerging markets, ECH remains a BUY.

The iShares MSCI Israel Cap Invest Mkt Index (EIS) rose 1.9%, hitting a high for the year. I’ll be visiting Israel next week, and can report more directly on the mood of the market at that time. Israel remains a BUY.

The iShares MSCI Hong Kong Index (EWH) rose 1.7% last week. With Asian markets ascending, Hong Kong remains a BUY.

SPDR S&P Emerging Markets Small Cap ETF (EWX) rose 3.62% this past week, flirting with new highs for the year. This volatile bet is a BUY.

First Trust ISE-Revere Natural Gas (FCG) was flat this week. With winter coming up, short-term upside potential of this natural gas play is strong. It remains a BUY.

ICICI Bank Ltd. (IBN) jumped all the way back above $40 this week, before pulling back but still ending the week 8% higher. IBN remains a BUY.

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Mechel (MTL) soared near its highs for the year before dropping back to end the week slightly up. This stock mimics the world’s appetite for risk. When the market is feeling good, Mechel soars. MTL is a BUY.

The iShares MSCI Turkey Invest Mkt Index (TUR) rose another 4% last week. Turkey is a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy.

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