Today we get this news that Petrobras will cut fuel prices across the board. It is fiscal stimulus by another name and in our view, ensures that a rate cut is in the offing. On the other hand, it’s not so constructive for PBR investors who have paid a stiff price since the first whiff of Lava Jato hit the press and oil prices tumbled, but such is the land of single stock picking. The latest move doesn’t mean PBR isn’t a good stock to own for the long haul but overweighting it is another matter.
As we’ve said, diversification is key to investing in general but especially for emerging markets. One of the conundrums facing investors who are looking to make an EM allocation is the fact that the most widely-held EM products basically own the same equities (this also applies to many active products by they way). As evidence of this, look at the Top 10 EM ETFs which are 90%+ correlated to the MSCI Emerging Markets Index and have been 80% correlated to the S&P500 this year. A logical explanation for this: they own many of the same equities.
“Dow Jones Brazil’s Petrobras Announces New Retail Fuel Pricing Plan
Brazil’s Petrobras Will Reduce Diesel Prices By 2.7% In Brazil
Brazil’s Petrobras Will Reduce Gasoline Prices By 3.2% In Brazil
Fri Oct 14 08:02:31 2016 EDT”