EWZS: Ignore The Noise And Focus On Valuation

seekingalpha06-22

kutaytanir Investment Thesis I recommend buying the iShares MSCI Brazil Small-Cap ETF (NASDAQ:EWZS). The Brazilian stock market and the real are among the worst performers in the world this year. This...

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This...</p>\n\n<a href=\"https://seekingalpha.com/article/4700480-ewzs-ignore-the-noise-and-focus-on-valuation\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>EWZS: Ignore The Noise And Focus On Valuation</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nEWZS: Ignore The Noise And Focus On Valuation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-22 15:44 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4700480-ewzs-ignore-the-noise-and-focus-on-valuation><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>kutaytanir Investment Thesis I recommend buying the iShares MSCI Brazil Small-Cap ETF (NASDAQ:EWZS). The Brazilian stock market and the real are among the worst performers in the world this year. This...</p>\n\n<a href=\"https://seekingalpha.com/article/4700480-ewzs-ignore-the-noise-and-focus-on-valuation\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4588","symbol_name":"碎股","start_time":0,"source_url":"https://seekingalpha.com/article/4700480-ewzs-ignore-the-noise-and-focus-on-valuation","article_id":"2445728288","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/154945600/image_154945600.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2445728288","pubTimestamp":1719042249,"columns":[],"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Let’s learn a little more about the ETF and the opportunities it brings. More Information About iShares MSCI Brazil Small-Cap The iShares MSCI Brazil Small-Cap is a traded index fund that seeks to replicate the performance of small-cap companies in Brazil. The index fund owns 92 companies. Below, we have the Brazilian companies with the highest weight in the index: Composition  In the long term, like other emerging countries, the Brazilian economy operates in growth cycles. And with the prospects and number of opportunities that Brazil offers, I believe that this asset can bring a lot of returns, which corroborates my purchase recommendation. Below, we will talk a little more about these opportunities. Brazil: A Country Of Opportunities In my EWZ ETF coverage initiation report, I was able to describe Brazil's opportunities in the agricultural, oil and mining industries. Now, I want to address other sectors to show Brazil's competitive advantages. Given its needs and the characteristics","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4588":"碎股","BK4504":"桥水持仓","BK4522":"非洲概念","EZA":"iShares MSCI South Africa Index","EWT":"台湾ETF-iShares MSCI","EWZS":"MSCI巴西小盘股ETF-iShares","MCHI":"中国ETF-iShares MSCI","BK4550":"红杉资本持仓","EWW":"墨西哥投资指数ETF-iShares MSCI","GXG":"Global X FTSE Colombia 20 ETF","CSAN":"Cosan SA","ECH":"iShares MSCI Chile ETF","BK4138":"石油与天然气的炼制和营销","BK4535":"淡马锡持仓","FDN":"First Trust Dow Jones Internet I","BK4585":"ETF&股票定投概念"},"translate_title":"EWZS：忽略噪音，关注估值","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CSAN":1,"ECH":1,"EWT":1,"EWW":1,"EWZS":1,"EZA":1,"GXG":1,"MCHI":1,"FDN":0.9},"content_text":"kutaytanir Investment Thesis I recommend buying the iShares MSCI Brazil Small-Cap ETF (NASDAQ:EWZS). The Brazilian stock market and the real are among the worst performers in the world this year. This does not match Brazil's fundamentals, which are better than many of its peers, as corroborated by Moody's recently. Furthermore, Brazil has many sectors with growth potential, and an independent central bank conducting monetary policy conservatively, which is not the case in many emerging peers. Introduction Since the beginning of 2024, Brazil has had the worst performance of its emerging peers like Mexico (EWW), South Africa (EZA), Taiwan (EWT), Chile (ECH), China (MCHI) and Colombia (GXG), as we can see: Performance (Koyfin) The same occurs with the performance of the Brazilian currency, the real. The currency has the worst performance of the year among emerging markets, even losing to the Argentine peso. Performance (Bloomberg) If the iShares MSCI Brazil Small-Cap ETF (NYSE:EWZ), which represents the main Brazilian stocks, has the worst performance in the world, the EWZS, which represents the Brazilian small caps, performed even worse. And I, as a value investor, come to warn investors to try to ignore the noise a little and stick to the country's fundamentals, which do have their flaws but also present good opportunities. Why Did This Occur? The answer to that question is distrust. It is not news that Brazil has a fiscal problem, and the Government led by the Workers' Party had committed in 2023 to delivering a zero fiscal deficit in 2024. However, President Lula himself has already said that the country will not reach the target. These statements added to the conflicts with the president of the Central Bank are causing investors, who are increasingly averse to risks, to be divesting from Brazil at the moment. But is this a reason for this sell-off? Let’s learn a little more about the ETF and the opportunities it brings. More Information About iShares MSCI Brazil Small-Cap The iShares MSCI Brazil Small-Cap is a traded index fund that seeks to replicate the performance of small-cap companies in Brazil. The index fund owns 92 companies. Below, we have the Brazilian companies with the highest weight in the index: Composition (iShares) In the long term, like other emerging countries, the Brazilian economy operates in growth cycles. And with the prospects and number of opportunities that Brazil offers, I believe that this asset can bring a lot of returns, which corroborates my purchase recommendation. Below, we will talk a little more about these opportunities. Brazil: A Country Of Opportunities In my EWZ ETF coverage initiation report, I was able to describe Brazil's opportunities in the agricultural, oil and mining industries. Now, I want to address other sectors to show Brazil's competitive advantages. Given its needs and the characteristics of an emerging country, Brazil presents great opportunities for investment in the infrastructure segment. It even launched the new \"Growth Acceleration Program\", with investments that could reach up to $347 billion in public-private partnerships. Speaking of energy transmission, Brazil is very well positioned in the renewable energy market. I also commented a little about this in my report on the start of coverage of Cosan (CSAN), however, I now want to talk about the potential of wind and solar energy. Brazil has excellent competitive advantages for wind and solar energy. Currently, the country has 7000 wind turbines in operation, but this number is expected to increase as the country succeeds in energy auctions. The current Government has a tendency to support renewable energy projects. When we talk about solar energy, the expansion is even faster. Studies show that solar energy could reach 18 TWh by the end of 2024. Decentralized facilities and large-scale investments are expected to boost this market. With these good prospects, Moody's recently upgraded Brazil's outlook to “positive”. In its opinion, Moody’s assessed that the prospects for real GDP growth in Brazil are more robust than in the pre-pandemic years. This is due to the implementation of structural reforms in several governments as well as the presence of institutional barriers that reduce uncertainty about the future direction of public policies. This corroborates my positive view of the ETF, and I feel confident about this when I see the valuation compared to other countries. Valuation Is Very Attractive Recently, BTG Pactual, the largest investment bank in Latin America, released a market report, comparing Brazil with emerging peers and the United States. ROE x P/E (BTG Pactual) The bank brought the P/E indicator of the countries' companies and the ROE. It should be noted that the EWZ ETF is best represented by the green dot Brazil (ex-Petro&Vale), even so, Brazilian companies have an ROE close to peers such as Mexico, Taiwan and South Africa, but their P/E is close to peers like Chile and China. When I look at this chart, I see the China and Brazil markets are extremely cheap. However, the return of Brazilian companies is even higher, and considering a target P/E of 12x, closer to Mexico, this would represent an appreciation potential of 20%, which is why my recommendation is to buy the EWZS ETF. EWZS According To Quant Rating And ETF Grades As we can see, my opinion completely diverges from Quant Rating's recommendation. Quant Rating And ETF Grades (Seeking Alpha) One of the reasons for this to happen is that the platform does not have valuation indicators. And the momentum has actually been very bad recently, let's talk more about this momentum in terms of risks to the thesis. Potential Threats To The Bullish Thesis In my view, the main risk of investing in the EWZS ETF is the following. When foreign investors look at Brazil, they see that Brazil has a significantly higher debt/GDP ratio than its emerging peers, especially after the election of the Workers' Party. Brazil Gross Debt To GDP (Trading Economics) Another factor is that Brazil's GDP growth is small, and has varied between 2% and 3% in recent years. This is significantly lower than the GDP growth of peers like China and India. In other words, the investor sees that Brazil is indebted and growing little, but then he evaluates the capacity to increase revenue and is surprised again, as Brazil is one of the countries that collects the most taxes in the world. There is not much possibility of increasing revenue with one of the highest taxes in the world. And what is the solution to the problem? The most obvious is spending cuts, but the Workers' Party Government has never admitted this solution or any of its possibilities. The president believes that reviewing tax exemptions could be a possibility. The risks to the thesis are diverse, and investors should be aware. The Bottom Line Brazil is a country with diverse investment opportunities, both in competitive sectors such as agribusiness and in other sectors where the country still lacks investment, such as the infrastructure segment. The country is emerging, and as such, it has its problems. Fiscal discussions have generated quite a lot of noise, which, in my view, is overestimated when I look at P/E and ROE metrics.  Based on this analysis, I recommend buying the EWZS ETF. In my view, value investors should ignore the noise and focus on the fundamentals. In my opinion, the asset is too cheap to ignore.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2445728288"}