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Be careful chasing momentum, writes UBS' Javier Kulesz, reminding of 2 years ago when Brazil -...

Be careful chasing momentum, writes UBS' Javier Kulesz, reminding of 2 years ago when Brazil - garnering the Olympics and the The Economist cover while getting kudos for its swift post-GFC recovery - was a market darling, while Mexico was just the opposite. Since then, Mexico (EWW) is up over 20%, outperforming Brazil (EWZ) by more than 4500 basis points. Now it's Mexico drawing the raves. One might do worse going forward than going long Brazil against a short in Mexico.
Comments (4)
  • Tao Jaxx
    , contributor
    Comments (1273) | Send Message
     
    Good idea not to do what the rest of the market does but in that case, this is a drawn out trend: Brazil cashed in the China windfall (selling commodities in demand due to the Chinese stimulus) while Mexico payed the Chinese tax, stripped of activity due to off-shoring to China by US companies.
    The fat lady sang on that trade: US companies on-shore back, including to Mexico, and China slows down.
    29 Jul 2012, 12:15 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3079) | Send Message
     
    Brazil has been more efficient at drawing in outside investment than Mexico. I would look towards Chile before investing in Mexico, especially given the instability of their long term drug wars. The lull in Brazil may provide a good opportunity to increase longer term investments in emerging markets.
    29 Jul 2012, 04:31 PM Reply Like
  • Tao Jaxx
    , contributor
    Comments (1273) | Send Message
     
    Then you should tell Chevron and minority shareholders of Petrobras and VALE how lucky they should feel...
    I'm thinking markets are about what lies ahead, not so much about what happened in the last 5 years.
    29 Jul 2012, 04:44 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3079) | Send Message
     
    If Brazil moves to jail Chevron or Transocean executives, or if they push Vale to excessively high tax levels, then further investment in Brazil will be sharply curtailed. Yes, this is a risk, and Brazil could become like Venezuela. My feeling is that the Brazilian government is more intelligent than Hugo Chavez, and they will not make moves that hinder future investments. Of course I could be wrong, but that is the risk each investor must take with emerging markets.

     

    Australia is the model for the future of Vale. The government there was going to substantially increase the taxes on mining activities, until both Rio Tinto and BHP Billiton told the government that the proposed high level of taxes would result in no further investment in mining activities in Australia. Vale is a global company. There is little to keep them from setting up their corporate headquarters in Luxembourg, or elsewhere, then operating mining through a subsidiary in Brazil. Some may consider that Vale could play chicken with the Brazilian government, and then decide who may blink first.

     

    When we invest we weigh what we perceive as risk factors. Those factors will differ for each investor. Where I am comfortable investing in Brazil, others may deem the risk as being too great. It is not up to me to tell anyone where to invest. People need to make their own decisions based upon what they feel are acceptable risk levels.
    29 Jul 2012, 05:11 PM Reply Like
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