Brazil Is A Solid Commodity Investment – Commodity Piece
Opportunities In Brazil
Brazil is a home of commodities, falling in the top 10 exporters for a lot of different commodities such as nickel, orange juice, corn, sugar, iron ore, etc. Commodities have had a rough decade in 2010s, but that seems to be changing in the 2020s. This decade is shaping up to be a vital period for the commodities asset class. Some of the major tailwinds include underinvestment in research and development, change in weather patterns, geopolitical conflicts, and increase in demand with limited supply.
Fundamentals Are Changing
With a rise in commodities, commodity-driven economies like Brazil are set to benefit from this. While the 10-year annualized return for Brazil (MSCI Brazil ETF - $EWZ) is only 1.76%, the fundamentals are beginning to change as the country has seen rapidly falling inflation and is decreasing its deficit spending via increased commodity exports.
Breath Thrust
The McClennan oscillator recently fired off for Brazil’s index (IBOVESPA - $IBOV). The McClellan oscillator is a market breadth indicator that is based on the difference between the number of advancing and declining issues on a stock exchange. The indicator is used to show strong shifts in sentiment in the indexes, called breadth thrusts. This oscillator surged above 100, indicating a lot of underlying strength. The 2-, 3-, 6- and 12-month returns following such a signal show strong returns with 75% hit rate (success rate) across the board.
Breakout From Macro Downtrend
This is one of the most attractive charts for the MSCI Brazil ETF ($EWZ). Brazil has just broken out from its secular downtrend with bullish momentum on its side. This macro downtrend has been in place since 2011. In other words, Brazil just broke past a 12-year downtrend that began in 2011. The returns from such a breakout can be exceptional.
3 Attractive Setups
While betting on the Brazilian index itself through MSCI Brazil ($EWZ) is sufficient for investors looking to get exposure to this commodity-drive economy, some investors/traders might want to take it a step ahead. Below are 3 Brazilian commodity stocks that are showing promising signs. All of these can be found on the New York Stock Exchange (NYSE):
1) Vale SA ($VALE)
This is the highest % holding in the MSCI Brazil ETF. The mining company has been in an uptrend since 2016 and is currently in a 2-year long consolidation. A breakout in the direction of the trend (read: upside) over the coming months seems likely.
2) Petroleo Brasileiro ($PBR)
This is the 3rd highest % holding in the MSCI Brazil ETF. The state-owned energy company specializes in oil and natural gas. It has now been in an 8-year accumulation zone and is showing signs of nearing a breakout. A close above 17 USD would open the door for significant upside.
3) Gerdau SA ($GGB)
Gerdau is the largest producer of long steel in the Americas, with steel mills in Brazil and many other South American countries. It recently broke below its minor uptrend line after getting rejected around the $6.25 resistance region, which has acted as strong resistance. The major uptrend line, which currently is at $2.50, is an attractive level to add this name. It is likely to get near that region given the bearish momentum. A confirmed close above $6.25 would result in a massive breakout for this stock.
We’ll continue to provide such commodity-driven Money Making opportunities in our Commodity Pieces. Let us know if there’s any specific commodity-driven regions you’d like us to cover. Until next time!
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