- Brazilian stocks are up more than 130% since bottoming in 2016.
- Tough economic reforms are poised to grow Brazil’s economy.
- You can buy Brazilian stocks right now at giveaway prices.
Britain’s BBC recently wrote an article wondering: “What’s Gone Wrong With Brazil’s Economy?” The piece noted the country’s many economic challenges.
After reading it, you’d want to run away from Brazilian stocks as fast as possible.
This shows where you can go wrong by investing on media headlines. That’s because you’d be throwing away a fantastic profit opportunity.
See, I used to be a financial journalist years ago. But I also did my own investing.
It didn’t take me long to realize an out-of-favor stock (or sector or market) often went up on a terrible headline — and just as easily went down when the news was great.
I learned an invaluable early lesson in my investing career: Stocks move in anticipation of future events.
Brazil’s Bitter Medicine
The iShares MSCI Brazil ETF (NYSE: EWZ) — up more than 130% in the last two years — is a great way to play this unfolding story:
If you look at the chart, you’ll see the gains follow a decline from all-time highs in 2008.
The country’s economy was in dire need of restructuring. And amid an array of corruption scandals, there was no political will to carry it out.
But when the pain gets bad enough, bitter medicine isn’t so hard to swallow.
In Brazil’s case, that means tough economic reforms:
- For instance, a pension reform bill is moving through Brazil’s congress. I expect it to be approved into law.
- The new administration is also proposing to lower the country’s maximum tax rate, which should free up money to be invested into new businesses and further grow the economy.
- Brazil’s natural gas sector is in the queue for important changes that will likely lower the cost of energy and be a boon to growth.
These proposals aren’t quantifiable facts since they haven’t actually become law yet. So it’s hard for journalists and research analysts to write about them in their reports.
But as investors, we’re supposed to make bets on the future. And right now, Brazilian stocks are at giveaway prices.
Best of good buys,
Jeff L. Yastine
Editor, Total Wealth Insider