In January, some of the “risk on” attitude has favored the sector that many investors love to hate. That’s right - financial stocks are back on a roll. The Sector Select Financials SPDR (NYSEARCA:XLF) even managed to climb above its long-term, 200-day trendline.
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That said, investors may be “smart” to dislike the financial segment. Wells Fargo (NYSE:WFC) notwithstanding, most of the banks have put forward terrible Q4 earnings and revenue numbers. The forward guidance has been equally sketchy. And the uncertainty surrounding European financial institutions will likely drag on financial corporations at least one more time here in 2012.
Truth be known, it is difficult to see a flawless execution of TARP-like protection for European banks between now and mid-year 2012. Greece may not even get its next bit of cash in March. And without a powerful, coordinated effort on protecting European nation debt, a sovereign default would be a tough pill for financial institutions to swallow.
Indeed, even as dividend yielders and dividend growers struggle to keep up with the cyclical standouts (e.g., financials, technology, materials, etc.), one should not count out the purveyors of cigarettes, beer, peanut butter and electricity. Dividend investments may be off to a slow start in January, but a correction in bank shares may indeed help dividend-oriented ETFs.
That said, if you believe in sub-10 P/Es, some of 2011’s worst performers are already showing renewed vigor. Specifically, iShares MSCI Brazil Fund (NYSEARCA:EWZ) registered an abysmal -24.2% last year. Out of the 2012 gate, however, EWZ has already gained 13%+.
Some attribute the rapid-fire start to the recent suspension of the “IOF Tax” – a levy on foreign investment in Brazil that may have dragged on Brazilian equities in 2011. It is my belief, however, that the suspension of the IOF Tax has only had a modest impact. In truth, there are a number of more potent factors that have been coming together.
Brazil is dependent on exports to China. As China loosens its monetary and fiscal policy, resource-rich Brazil’s exports will rise dramatically. Also, Brazil has the need to rapidly build infrastructure for the hosting of both the FIFA World Cup and the Olympics. Additionally, you have P/E ratios at a historically attractive 9.8.
In reality, nothing is more attractive to a Brazil investor than a soft landing in China. And many are beginning to see the likelihood of just such an outcome.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.