Strategist: Keep an Eye on Brazil and Regional Bank ETFs

 |  Includes: BRF, BRXX, EWZ, EWZS, IAT, KRE, RKH
by: Tom Lydon

Russ Koesterich, iShares Global Chief Investment Strategist, recommends investors keep an eye on Brazil ETFs and regional banks. Koesterich reports that regional banks are cheap, and the current valuation is a 15% discount to the broader financial sector and a 55% discount to the overall market. Compared to past performance, other financials and the broad market, the shares are presenting an opportunity.

Some analysts like valuations in regional banks and the potential for takeovers by larger rivals. There are plenty of regional bank ETFs to help investors gain well-rounded exposure to this area of the market.

Various Regional Bank ETFs include:

  • SPDR KBW Regional Bank (NYSEARCA:KRE)
  • Regional Bank HOLDRs (NYSEARCA:RKH)
  • iShares Dow Jones U.S. Regional Banks (NYSEARCA:IAT)

For the long term, Brazil is on many investors’ radar. Brazilian equities are benefiting from a strong central bank, good demographics and reasonable valuations. The economy is still wrestling with inflationary pressure and this is the only point of caution for this emerging market.

While the Brazilian central bank just hiked rates to 12% in an effort to fight inflation, the strategist says he still would prefer to see either an actual drop in inflation from the current level of 6.3%, or a 10% drop in valuations relative to world markets before favoring an overweight to Brazilian stocks.

Brazil ETFs include:

  • iShares MSCI Brazil Index Fund (NYSEARCA:EWZ)
  • EGShares Brazil Infrastructure (NYSEARCA:BRXX)
  • Market Vectors Brazil Small-Cap ETF (NYSEARCA:BRF)
  • iShares MSCI Brazil Small Cap Index Fund (NYSEARCA:EWZS)

Tisha Guerrero contributed to this article.