It’s early. The results are open to revision and interpretation. And one month doesn’t make an investible trend anymore than a single swallow makes a spring.

But have you noticed? In the last month emerging stock markets such as China and Brazil have outperformed the U.S. market.

And that’s an absolute turnaround from results in 2010 and for most of 2011. Does it mean that we’re about to reverse the pattern that’s held for more than a year and see emerging markets start to outperform developed markets? Well, sort of. The picture right now shows that the outperformance is limited to some emerging markets and even in those markets, so far, the outperformance is spotty.

But I do think there’s the beginning of a trend here that your portfolio needs to respect. And since it’s so early, you need to pay attention to what kind of stocks in these emerging markets investors are willing to buy right now.

Here’s the data.

For the U.S. markets–for 2010 the Standard & Poor’s 500 stock index was up 15.02%. For 2011 to date, as of November 15, the S&P 500 was up 1.65%. In the last three months it gained 5.05% and for the last month 2.85%.

For Brazil—for 2010 the iShares MSCI Brazil Index ETF (EWZ) was up 7.69%. For 2011 to date as of November 15, it was down 19.54%. In the last three months the loss was a more modest 2.80% and in the last month the index climbed 4.35%.

Yep, after trailing for 2010. After getting killed in 2011 to date. After trailing badly over the last three months. In the last month the Brazil index beat the U.S. market.

China shows the same pattern—with some important wrinkles. Read more

Update Itau Unibanco (ITUB)

On November 1 Brazil’s Itau Unibanco (ITUB) reported third quarter adjusted net income, which excludes one-time items, of 3.94 billion reais (or $2.3 billion). That was up from 3.16 billion reais in the third quarter of 2010. That’s a 24.7% increase. The results also easily beat the analyst estimate of 3.65 billion reais for the quarter. (Reais is the plural of real.)

Great numbers.

But before you rush out to buy these shares—and the stock is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ –you need to get your head around this number. In the quarter the bank posted an annualized return on equity of 22.7%. That was up from 22.2% in the second quarter. As you’d expect that measure of profitability at Itau obliterates the return on equity at troubled U.S. banks. The comparable measure at Citigroup (C) is just 6.72% for the last 12 months and a negative 1.45% at Bank of America (BAC). But it also humbles the profitability at some pretty good U.S. banks. JPMorgan Chase (JPM), for example, shows a return on equity of 10.9%, PNC Financial (PNC) 11.92%, and U.S. Bancorp (USB) 14.24%.

That ought to raise a big screaming question in your mind—Is the Itau Unibanco story that good? Or is there some huge burden of risk hanging over the stock that means you shouldn’t buy it even with that kind of differential in profitability? Read more

Update Itau Unibanco (ITUB)

Want to know why Brazil’s stock market was the first global market to fall into a bear? You can see the reasons for the fears that have been crushing Brazil’s stocks in the August 3 earnings report from Itau Unibanco, for my money Brazil’s best-run bank. (Itau Unibanco is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ )

The company announced that for its second quarter net income climbed 14% from the first quarter in 2010. Adjusted earnings per share, which exclude one-time items, were 73 centavos a share. Analysts had been expecting adjusted earnings per share of 82 centavos so the bank missed estimates by almost 11%.

The problem with the quarter wasn’t loan demand. Read more

Update Itau Unibanco (ITUB)

On February 9 Itau Unibanco (ITUB) reported a 72% jump in fourth quarter net income from the fourth quarter of 2008.  Just as important in banking these days, credit quality improved. The percentage of loans more than 90 days behind in payment fell to 5.6% as of the end of December from 5.9% at the end of the third quarter. That was the first improvement in the delinquency ratio since the third quarter of 2008.

The company managed to grow its loan portfolio in the quarter by 4% from the end of the third quarter and still increased its Tier One capital ratio to 13.7%.

Itau Unibanco remains the most profitable bank in Brazil with a return on average equity of 22.6% in the quarter. That was up from 20.1% in the third quarter and above the 18.2% return on average equity at top competitor Banco Bradesco (BBD).

2010 looks like a good year for Itau Unibanco. Read more

Chinese stocks crack: Time to go bargain hunting–in Brazil

The Shanghai Composite stock index closed down 5% on July 29. The intraday damage was worse with stocks down 7% at one point.

The rout wasn’t surprising. The Shanghai market was up almost 80% for 2009. And rumors have been swirling in recent days that officials in Beijing, worried that the government’s economic stimulus package was about to produce new stock market and real estate bubbles, were going to step on the financial brakes. Under the circumstances taking some profits made sense to a lot of the traders and speculators in Shanghai.

I don’t know how long this much overdue correction will last. The likelihood is that the rumors about Beijing taking some action to damp asset prices will keep the markets nervous until the government actually acts. (When it does, I’ll bet that the stock market will be back off to the races because any restrictions are likely to be slight indeed. Nobody in Beijing wants to do anything now that would seriously threaten economic growth)

But if Chinese financial markets do drop for a few more days, it could give you a great opening to hunt for bargains. Not in Chinese stocks. Because of the way that China’s financial markets are structured, I think investors who put money directly in Chinese stocks are asking to get fleeced.

No, I’d look for bargains in Brazilian equities. They’re my current best idea for how to profit from China’s long term economic growth. I’ve even got a suggestion for which two Brazilian stocks to watch. Read more