Brazil is now home to the second-most coronavirus cases in the world and has more than 10% of the global total of cases and fatalities. That is to say, it’s not surprising that Brazilian markets have been more volatile than usual.
Still, the VanEck Vectors Brazil Small-Cap ETF (BRF ), not traditional large-cap Brazil ETFs, could be the way to play a rebound in Latin America’s largest economy.
BRF seeks to replicate the price and yield performance of the MVIS Brazil Small-Cap Index, which includes securities of Brazilian small-capitalization companies. A company is generally considered to be a Brazilian company if it is incorporated in Brazil or is incorporated outside of Brazil but has at least 50% of its revenues/related assets in Brazil.
Banking on the Consumer
As is the case with so many economies around the world, economists believe that in order for Brazil to snap out of its funk, the consumer has to lead the way. Some of that uptick will be derived from e-commerce and online retail.
“EBANX conducted a survey with more than 1,500 consumers of international websites in Brazil, between April and May 2020,” reports The Payers. According to the press release, the data shows that within the scenario of COVID-19, many Brazilians expect to maintain or increase the purchasing frequency on international eCommerce websites. Most of those who shopped frequently on international websites before the pandemic show a tendency to maintain or increase the frequency during the pandemic (53%). The same behavior is shown among the survey participants who are currently receiving government financial aid.”
Fortunately, BRF is more than adequately levered to the Brazilian consumer as the consumer discretionary is the largest sector weight in the fund at the north of 23%. That’s well above the weights to consumer cyclical stocks found in large-cap Brazil funds. The pandemic is also changing how Brazilians transact and pay for goods and services.
“However, what changed in the current scenario is the way they pay it,” according to The Payers. “Therefore, 67% of Brazilians who were already buying on international websites with boleto before the pandemic stated that they will choose an online payment experience to pay the boleto during the pandemic. This behavior may be the result of social distancing measures, with restricted operation at many lottery stores, bank branches, and other places authorized to charge these amounts in the country.”