In the current turbulent market conditions, it’s harder and harder for investors to find sensible markets to invest in. This is even more difficult if you’re range of accessible markets is limited to Europe and the US. Many market experts and analysts have long sung the praises of various emerging markets as a sensible investment, but it’s not easy for everyone to actually get access to these markets.
More and more financial spread betting providers are offering a wider range of exotic shares and indices from around the world. Markets such as Turkey, India, Egypt, eastern Europe, south America and the middle east. Obviously the economic turbulence around the world has effected many market places, but if you want to include investing in the emerging markets as part of your investment strategy, it’s worth considering financial spread betting and CFDs as an option to do this.
If your spread betting provider offers it, it can be interesting to bet on the Brazil Stock Market Index, which you may find called the Ibovespa. The index is cumulative, including dividends and other bonuses, so will increase relatively more quickly than some other indices that are simply based on share values. But the overall volatility will be a more significant factor than that for the average spread better.
The current spread betting quote for the Brazil Index is 59,513 – 59,573. If you think that the index will be going up, you could place a buy bet at 59,573. Because the index number is so large, even a 1% move is nearly 600 points, so you need to be careful how much you bet. Say you bet £1.50 per point.
You decide to take your profit when your spread betting company is quoting a price of 60,126 – 60,186. You close your bet at 60,126 and work out your winnings.
The number of points that you have gained is 60,126 minus 59,573, that’s 553 points. You bet £1.50 per point, so you have won £829.50.
If instead the index had gone down after you placed your bet, you would need to exit the bet quickly and cut your losses. Say it went down to 59,462 – 59,522. Your long bet would close at the lower figure, again, which this time is 59,462.
The number of points you have lost is 59,573-59,462, which is 111 points. For the same stake of £1.50 per point, your total losses work out to £166.50.
Looking now at a sell bet, or short bet, if you think the index is going down, suppose you wager £1 per point at the original price of 59,513. The index goes down to 59,263 – 59,323, and you close the bet. You can calculate how much you won by multiplying the points you gained, this time going down because that was your bet, times the stake.
The number of points you gained is 59,513 less 59,323 – the short bet closes on the higher number of the quote. That means that you gained 190 points. You can easily work out that with a stake of £1 per point, you would win £190.
Once again, to make a profit at spread betting you have to realize that some bets will go against you, and one of the keys is to cut your losses quickly, before they mount up. Assume in this case that the index goes up to a price of 59,602 – 59,662, and you see no signs that it will stop. You close your short bet at 59,662, and figure out how much you have lost this time.
The number of points that are against you is 59,662 less 59,513, the starting level. That amounts to 149 points. You originally staked £1 per point, so you simply multiply that times number of points. Your total losses amount to 149 times £1, which works out to £149.
How to Spread Bet the Brazil Stock Market Index
The Bovespa Index, also called IBovespa (which is short for Ίndice Bovespa), is the main index of the Brazilian stock market, traded in São Paulo, Brazil. You will not find it with every spread betting provider, but as it is an index for one of the BRIC countries, which Goldman Sachs tipped to be the emerging world financial economies, it is certainly worth watching.
It includes about 50 stocks, and the criteria for inclusion is that they have been actively traded on the exchange in the past year, more than 80% of the shares in the company must be traded on the exchange, and the company share of the trading on the Brazil Stock Exchange must be more than 0.1% of the total business on the exchange. In practice, this means that the stocks accounted for more than 80% of the volume traded in the last 12 months, although the value of the Ibovespa is about 70% of the entire stock value.
Unlike many other indices, the Brazil Stock Market Index is something called an accumulation index. What this means is that the index represents the current value of the portfolio, which started at a nominal 100 in 1968. It includes all share price increases, as with any index, but also adds in dividends, bonus stocks issued, and any subscription rights. In other words, it tries to accurately emulate what an investment of 100 in the top companies 40 years ago would be worth today if it had not been touched, apart from adjusting to make sure it was still vested in the best performers. It’s actually been quite a volatile index, as you can see from this CNN chart of the last five years: –
The Brazil Stock Market Index has had to be regularly adjusted to keep the value to a reasonable level. In fact it has been divided by 10 eleven times over the life of the index, most recently in 1997. The Brazilian economy is a little more stable now, so although the index was being divided almost annually in the 80s and 90s, is has now gone many years without this reduction. With the current value being between 50,000 and 70,000, some say that it should be divided again. This would not make any difference to the overall movement of the index, but if spread betting per point obviously you would have to make adjustments after such a division.
As far as spread betting on the IBovespa, you need to follow sound guidelines for money management and asset retention. The same volatility which promises good opportunities for profit in spread betting will also be leveraged to your detriment, and it is important that you establish and maintain a good stop loss strategy as part of your detailed trading plan. The way that economics works in South America may seem to be strange to the Western spread trader, but the chart can still be analyzed in accordance with established principles, and may repay detailed study.