Brazil Fund Shining Alone

Russia-Ukraine War Raw Material Surge Benefits
40% of Brazil Stock Market Is Energy Sector

[Asia Economy Reporter Minji Lee] Although the appeal of emerging market funds is declining amid the tightening monetary cycle, Brazilian funds have been an exception. As Russia's invasion of Ukraine ignited a surge in commodity prices, Brazil, which relies on commodity exports, has attracted investors' attention. Since it is expected that commodity prices will not return to their previous levels in the short term, the samba dance of Brazilian funds is predicted to continue for the time being.

According to financial information provider FnGuide on the 25th, the return on Brazilian funds (10 funds) was recorded at 24.07%. While most major overseas equity funds have shown negative returns this year, Brazilian funds alone posted favorable returns. North American equity funds, which showed double-digit high returns last year, fell to -8%, and Europe (-7%), Emerging Europe (-52%), China (-14%), Japan (-6%), and Vietnam (-2%) also all recorded losses.

Among individual Brazilian funds, the Shinhan Brazil Fund performed the best this year with a 27.7% return. This fund holds high proportions of financial sector stocks such as Banco do Brasil (6.3%), Bradesco (6.1%), Ita? Unibanco (4.8%), the largest mining company Vale (5.3%), and grain and ethanol company Cosan (4.5%). Additionally, the Multi-Asset Samba Brazil Fund (27.5%), Shinhan The Dream Brazil Fund (27.3%), and KB Brazil Fund (24%) also recorded high returns in the 20% range.

The surge in commodity prices has led global investors to flock to the Brazilian stock market, resulting in increased returns. Brazil is a representative commodity-exporting country, selling iron ore, soybeans, crude oil, and more. According to the Chicago Mercantile Exchange, iron ore prices have surged 32% this year, while soybean and crude oil prices have soared over 27% and 50%, respectively. The Bovespa Index, the representative index of the Brazilian market, rose 14% from 13,922 on January 3 to 11,953 as of the previous day. Since 40% of the stock market is composed of energy-related sectors, the rise in commodity prices has led to expectations of improved corporate earnings.

The possibility of upward revisions to growth forecasts has also improved investment sentiment in Brazil. Although the central bank's interest rate is expected to rise to 12.75% (from 11.75% in March), causing growth forecasts to fall to 0%, the sharp rise in commodity prices has increased the likelihood of upward revisions.

Minyoung Park, a researcher at Shinhan Financial Investment, analyzed, "As the influence of Omicron weakens, the reopening effect is adding momentum. Considering the supply disruptions in commodities, the global commodity strength is unlikely to reverse in the short term, so despite the extension of tightening monetary policies, the investment environment in Brazil is more favorable compared to major countries."

This content was produced with the assistance of AI translation services.