By Carl Delfeld of the Chartwell ETF Advisor
Brazil’s stock exchange, Bovespa, rose 52 % on its first day of trading. The exchange’s R$32-a-share price on Monday represented almost 50 times forward earnings.
This is a head turner in that other listed stock exchanges may be a bit toppy – the Financial Times reports that the London Stock Exchange is at 25 times 2008 earnings, the Singapore Exchange at 30 times – but only Hong Kong’s is at a similar multiple.
Bovespa is the largest bourse in the region, and only two others – the tiny Peruvian and Colombian exchanges – are listed. The owners of Mexico’s stock exchange, about a third the size of the Bovespa, delayed going public this summer because of fears markets were unfavourable. Bad move.
The surprising jump in this IPO is a reflection of this year's strength in Latin ETFs and, in particular, of Brazil's dominance.
The iShares Latin America 40 (ILF) is up 56% so far this year with 64% exposure to Brazil, 26% to Mexico, 7% to Chile and 3% to Argentina. The Brazil iShare ETF (EWZ) is up 76.4% this year, Mexico (EWW) is up 21.9% in part due to its ties to the U.S. economy and fears of a slowdown.
ILF's sector breakdown is 33% for materials - read commodities, 17% financial institutions and 14% for energy followed by the industrial and telcom sector.
Brazil's largest company, Petrobas, has gone in market value from $27 billion five years ago to $173 billion. The largest ten companies listed on the exchange have collectively gone from only $94 billion in 2002 to $685 billion today.
Will these Latin markets and ETFs hold up or are they overvalued and headed for trouble? Join the Chartwell ETF Advisor and get some expert advice.
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