Many market pundits recommend Emerging Market stocks without understanding the impacts of local currency volatility in a portfolio’s performance. As an example, let’s take a quick look at what happened with the Brazilian Real and Bovespa in the last three months.
Looking at the chart below, Bovespa (BVSP, in blue) reflects the market in local currency, the Brazilian Real (BRL). If an international investor looks at that index alone, it seems like the recent, double-digit BRL devaluation has never occurred. Hence, a better representation of the currency devaluation effects on a portfolio is by taking two funds, priced in US dollar, and that correlate highly with Brazilian stocks: EWZ (a Brazil ETF, in red) and MCLTX (a LatAm fund, in green). Observe how they compare with BVSP for the last three months.
This article was written by Tom Elias exclusively to BrazilianBubble.com.
Mr. Elias is an investment professional and business consultant with 30-years of high-tech and manufacturing experience in Brazil and the U.S.
To contact him, please write an email to firstname.lastname@example.org