Taking profits in Brazil's small caps
With the possibility of Brazilian interest rates heading up, it's time to cut exposure.
With Brazil's central bank likely to start raising interest rates at its April 27 meeting, I'm going to cut my short-term exposure to my favorite developing market by selling Market Vectors Brazil Small-Cap (BRF).
I've got an 8.3% gain in the exchange-traded fund (ETF) since adding it to Jubak's Picks on Feb. 1.
The betting among economists is that the central bank will raise its target Selic rate from the current 8.75% to 11.25% by the end of 2010 to reduce inflation that's now running at 5.2%. (For more on Brazil and inflation, see this post.)
Small companies are especially vulnerable to increases in interest rates, since banks are a more important source of capital than they are for larger companies that have an easier time tapping the stock and bond markets. And any slowdown in Brazil's domestic economy will have a bigger effect on exactly the small domestic companies targeted by this ETF than on larger Brazilian companies that export to world markets.
This is the second time I've profitably traded in and out of this ETF. I expect to revisit this position later in 2010, when interest rate increases have taken some of the steam out of Brazilian stocks.
At the time of this writing, Jim Jubak owned shares of Market Vectors Brazil Small-Cap ETF in his personal portfolio. He plans to sell that position in three days.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.