Contrarian Perspective: Are Brazil ETFs Now A Buy?

A Seeking Alpha Contribution

A contrarian investor attempts to make a profit by going against the conventional wisdom, especially when they believe that the crowd is mispricing securities due to extreme pessimism. The Bovespa, the Brazilian stock market, has fallen precipitously from its recent high of 61,896 on September 2 to sit at 51,772 at the close on November 14. That’s a 15.3 percent drop. It’s true that most of the Brazil-related economic and market news has been bad lately, and there hasn’t yet been a catalyst to draw investors back into the exchange. However, given that all of these negatives are currently accounted for by the market – and that the market likely overreacted to the re-election of Dilma Rousseff as president – Brazil is a buying opportunity for contrarian investors… To Continue Reading, Please Click Here.

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Global stocks are off to a strong start on Monday, thanks to China’s decision to cut interest rates. Chinese listed shares in Hong Kong rallied more than 3 percent on Monday and European markets followed with a positive open.

China’s decision to cut rates is good news for the U.S. dollar, which could reach a new multi-year high over the coming weeks. With China now cutting rates and the European Central Bank talking about doing more, many of the world’s major economies are weakening their currencies. In addition to central bank actions, changes including the shale revolution in the United States, continues to support the dollar. Today, the Financial Times is reporting that U.S. oil imports from OPEC are at 30-year lows. This is all strongly positive for U.S. stocks and bonds.

Trading on Monday and Tuesday will set the tone for the week as the U.S. market will be closed on Thanksgiving. Additionally, volume is typically light on Wednesday and again in the half-day trading session on Friday. Even though it is a shortened week, there are some big earnings announcements, led by Hewlett-Packard (HPQ). The company is expected to report an increase in earnings and a decline in sales on Tuesday after the market closes. A few retailers will also report this week, including Tiffany (TIF).

Economic data will be light, but on Tuesday the BEA will announce the second estimate of third quarter GDP growth. Analysts expect the revised number will be 3.3 percent, down from the initial 3.5 percent growth rate announced in October. Several consumer data points will be released, including consumer spending in October and consumer confidence in November. All are expected to be positive in the wake of lower oil prices, with the stronger U.S. dollar also chipping in some support for consumers.

Stocks enjoyed an uneventful week before pushing to new highs after China’s central bank cut interest rates on Friday. All the major indexes gained ground, with only the Russell 2000 Index failing to make a new high.

In the People’s Bank of China statement, they stated the decision to cut interest rates was not out of a desire to reverse the current policy of tight money. Some economists do view the move as driven by economic fundamentals in China, but the more likely catalyst for the move was Japan’s surprise expansion of quantitative easing in late October, which China immediately termed a threat. In the wake of China’s decision to cut interest rates, European Central Bank (ECB) President Mario Draghi also said the ECB was ready to do more. The result was a sharp drop in the euro that has pushed the U.S. Dollar Index to its highs. Markets were broadly higher though, as many investors did view the move as bullish for Chinese demand for natural resources, lifting the prices of many commodities, including oil.

In other central bank news, the Federal Reserve released the minutes of its last meeting, the one at which the decision was made to end quantitative easing. Although there wasn’t a lot of new information in the minutes, we did learn that Fed officials debated language related to when rate hikes will begin. Some officials argued for removing the statement that rates would remain low for a “considerable amount of time,” but they were rebuffed by those who feared the market might interpret that change as a signal that rate hikes would come much sooner. This debate shows the Fed leaning in a hawkish direction, with the debate centered on timing.

Retail stocks continued to outperform the broader market this week, although the jump in oil prices on Friday caused SPDR Retail (XRT) to lag behind SPDR S&P 500 (SPY). The sector was also hurt by Gap’s (GPS) earnings report, which included a reduction in its profit forecast for the year. The sector was however boosted by strong earnings reports from Best Buy (BBY), Home Depot (HD) and Lowe’s (LOW). With the beginning of the holiday shopping season, the retail sector should continue improving.

Stocks have been in a slow and steady uptrend since Japan’s decision to expand quantitative easing. With China potentially joining the currency devaluation game, another wave of liquidity could boost markets over the weeks ahead. The markets typically rally into the end of the year, but with major central banks in Japan, China and Europe looking to increase liquidity and/or weaken their currencies, stocks should have the wind at their back for the last six weeks of 2014.