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Experts Divided on Brazil

Banks, retailers join commodity giants in the spotlight, but have they come too far too fast?

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Brazil looms large in many emerging-markets portfolios. The average emerging-markets stock fund had a 16% stake in Brazilian equities as of Aug. 4, 2010, making it the largest country weighting. (The typical Latin America fund devoted roughly 71% of assets to the country.) In some cases, this exposure reflects the popularity of Brazil's commodity giants: energy firm  Petroleo Brasileiro (PBR) (Petrobras) and materials titan  Vale (VALE).

But there's much more to Brazil than its diverse natural resources. The country's middle class has flourished in recent years thanks to low interest rates and easier access to credit. Growing income levels could set the stage for more robust retail sales, industrial spending, and housing demand. Reflecting these trends, the MSCI Brazil Index, though still heavy in the energy and materials sectors, has shifted away from those areas more toward financial services and consumer-related industries in recent years. And exposure to telecom firms fell to roughly one fourth of its former weight.

Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.