Brazil ETFs: Bulls Wait for Bounce, Bears in Control

ETF Trends

Brazi’s Ibovespa index tumbled 16% in the second quarter, a fall that took the benchmark index in Latin America’s largest economy into bear market territory. That slide also made the Ibovespa the worst performer among the world’s 20 largest benchmark indices. Slack economic growth, rising inflation and a plunging real weighed on Brazilian stocks and ETFs.

The iShares MSCI Brazil ETF (EWZ), the largest Brazil ETF by assets, slid 16.3% last quarter. Year-to-date, EWZ is down 24.4%, by far the worst performance among the four major single-country ETFs tracking the BRIC nations. With a loss of 24.4%, EWZ has been 580 basis points worse than the iShares FTSE China 25 ETF (FXI) . The Vanguard FTSE Emerging Markets ETF (VWO) is down “just” 14% this year. [Brazil Worst Performing International ETFs in Q2]

Brazil’s myriad economic woes have been amplified in recent weeks as over 200,000 protesters took to the streets in various Brazilian cities to voice their disdain for the country’s policies and economic trajectory. What started as protests over bus fare hikes, a sign that President Dilma Rousseff and her administration may be out of touch with the impact inflation is having on average Brazilians, morphed into the country’s largest protests in 20 years amid concerns Brazil is diverting too much cash to hosting the 2014 World Cup and the 2016 Olympic Games while not focusing on education and health care. [Brazil ETFs Lower on Protests]

Rousseff, previously one of the most popular leaders in the world, including developed markets, has seen her popularity and approval ratings plummet. Brazilian stocks are doing the same. As just one example, shares of Brazil’s state-run oil company, Petrobras (PBR) plunged 6.1% Friday to close at $12.25. The stock earlier traded as low as $12.03 and most financial media outlets were highlighting the fact that Petrobras sank to yet another 52-week low.

Actually, if Petrobras closes below $12, something that could happen any day now, it would be the first time it has done so since 2005. Two Petrobras securities combine for 11.4% of EWZ’s weight, according to iShares data.

Brazilian small-caps have fared worse as the Market Vectors Brazil Small-Cap ETF (BRF) is down more than 30% this year. Trying to find a bottom in Brazilian small-caps has become harder due to downwardly revised growth forecasts.

Brazil’s National Confederation of Industry recently lowered its 2013 GDP growth outlook for Brazil to 2% from 2.6%. “The model of economic growth reliant on domestic consumption no longer holds up,” said CNI in the Business Standard.

That is not good news for an ETF like BRF, which devotes almost 35% of its weight to consumer discretionary names.

iShares MSCI Brazil ETF

View photo

.

EWZ

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments (0)