Emerging markets uncovered: The ins and outs of Brazil’s Bovespa Index

Julie Brownlee, Fsp Invest, 10 Sep. 2014

Tags: bovespa index, bovespa, brazilian stock market, stock market in brazil, emerging markets,

Emerging markets are in countries that are classed as ‘developing’ nations. South Africa falls under this umbrella.

Another emerging market is Brazil. The main stock market index in Brazil is the Bovespa.

So how has this index been performing recently? And what makes up the index?

Let’s take a closer look…

The main sectors of the Bovespa Index

For the past three years, the Bovespa Index has been stuck in a sideways movement. This is mostly thanks to the cooling down of household credit in Brazil.

This has led the main sector of the Bovespa Index, financials, to suffer. Financial companies make up just over 37% of the market. So the performance of these stocks has a big bearing on the Index.

Have a look at the chart below, which shows the breakdown of the index’s sectors…

Chart of the Bovespa Index sectors

Basic materials are also quite a big component of the index. As are oil and gas companies. They account for around 14% and 13% respectively. That’s nearly 30%.

As demand for raw materials exports has ebbed, this has also had a negative effect on the Bovespa Index, contributing to its sideways move.

The Bovespa Index is very sensitive to the economy

The stocks that dominate the Bovespa Index are very cyclical (or economically sensitive). They make up around 75% of the market.

The market has very little in the way of defensive shares.

The economy doesn’t tend to have an effect on defensive shares. So these shares tend to continue to perform when the economy is going through a cooling off period as it is at the moment in Brazil.

Consumer goods and utilities make up the defensive stocks of the Bovespa. That accounts for nearly 15% of the index.

So there you have it, the ins and outs of Brazil’s Bovespa Index.

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