Friday, December 17, 2010

DB Brazil ETF - Part I

Last checked, there are now 75 listed ETFs in Singapore. As blogged a couple of times, ETFs present an easy way for lay people to invest into stocks and shares without having to put in too much effort (ie do a lot of study and research). Basically, you just buy into the regional/sector growth of the ETF. To learn more, simply click on the ETF label at the end of this post.

Today's post is about Deutsche Bank's Brazil ETF listed on SGX. It seemed like this might be one of the cheaper ETFs out there amidst global bullishness on Emerging Markets.

Brazil has the 8th largest economy in the world and it is projected to be in the top 5 in the next 20 years. GDP growth should be a high single digit for the foreseeable future, although a tad weaker than China, its cheaper valuation more than make up for it.

The Brazil ETF trades at a PBR of 1.7x, 1 yr forward PER of roughly 11x and gives a dividend of close to 3%. Although not as mouth-watering as in early 2009, I find such valuations quite acceptable, given its growth profile. And definitely cheaper compared to China.

The components of the ETF are basically just 4 items.

1. Petrobras, the oil giant with its mega oil-field currently under-development.
2. Vale, the iron ore major, which depends on China's appetite for steel.
3. The banks, which basically mirror the growth of Brazil.
4. The consumer staples, discretionary and utilities sector in Brazil, ie the Brazilian economy.

These four sectors roughly make up 25% each of the ETF. So basically, for every dollar put in, 50c is betting on Energy and Resource, and the other 50c on Brazil itself.

The first big risk here would the replacement of oil. As we all know, when oil hit $150 per barrel during the heydays, it really gave a wake-up call to the guzzlers of the world (which is pretty much everyone), reminding us that being held hostage by the Arabs is no fun and we better start to reduce our dependency on this energy source derived from the remnants of the dinosaurs.

And so, the techies of the world started their engine and ventured out there looking for new energy sources. We are now going big into nuclear, wind, hydro, oil sands, shale gas, solar and even human dynamo in Africa. Of course, we are also trying to use less at the same time, ie more hybrid cars and EVs. Now this is definitely no good for Petrobras.

Well, fortunately, I think the mitigating factor would be that it takes a long time for these alternatives to actually come to the market and finally free us from the Arabs. So meanwhile, we want to develop other big oil fields to limit their market share of oil. And this is where Petrobras and its mega oilfield comes in. And it is in the interest of the world to develop this and make it work.

Next post, we touch on another risk and round-up this topic!


  1. Isn't it a synthetic ETF too?

  2. hi, how do you check the PE Ratio of an index? Specifically the STI? I'm thinking of buying into STI ETF but i'm not sure whether it's a good time now. Thanks.

  3. Hi Lizardo, most of the ETF listed on SGX are synthetic ETFs. The DB Brazil one is no different. The additional risk of the synthetic ETF is that counterparty risk. ie the counterparty goes bankrupt and cannot pay up. This risk is real and ETF investors cannot avoid it. With investment, there is always risk. So ultimately just have to manage it. The way I would do it would be to limit the absolute amt that I put in.

  4. I used the financial info providers like Bloomberg, Reuters etc. You can google "sti pe ratio" and you will find some blog which has the PE ratio in Sept 2010.

    I think today it is about 13-14x for the STI based on next yr's earnings.

    I would say it is neither expensive nor cheap.