After ranking among the day’s bottom performers Monday, Sept. 10, a roster of Brazil-focused equities ETFs were retracing their steps Tuesday thanks to a number of economic stimulus measures the government there is implementing to spur growth.
News that Brazilian president Dilma Rousseff is looking to cut interest rates and reduce energy costs to help jump-start an economy that saw second-quarter GDP growth disappoint at a 0.4 percent rate sparked a rally in domestic Brazilian stocks. Early Tuesday, the Brazilian Bovespa was up 1.4 percent.
ETFs that tap directly into Brazilian equities were benefiting from the momentum with funds such as the $7.6 billion iShares MSCI Brazil Index Fund (EWZ) tagging on gains of 1.3 percent early in the session. The Dow Jones industrial average, meanwhile, was inking a much more modest rise of 0.6 percent.
The gains came just a day after EWZ gave up some 2.15 percent of its value amid a roster of other Brazil-related funds that populated IndexUniverse’s worst-returning ETFs list for Monday.
Among them, the EGShares Brazil Infrastructure ETF (BRXX) was the group’s worst performer Monday, tagging on losses of 3.5 percent, only to rebound Tuesday with gains of 0.6 percent.
By and large, Brazil-related funds have had a troubled year, as commodities-rich, export-focused Brazil faces a slowing global economy mired by economic contraction in Europe, the U.S. and China. Brazil is now expected to see economic expansion of a modest 1.64 percent this year.
Equities Markets Rekindled
The projected GDP growth there is barely living up to the promise of emerging-market outsized performance relative to developed world markets, but the government’s decision to take measures to spark growth has rekindled the equities markets there.
Another tidbit of good news came recently courtesy of China, which approved massive infrastructure projects as it looks to expand its slowing economy. Any infrastructure boom there will necessitate supplies, such as metals and mining products, many of which originate in Brazil.
On the flip side, the devaluation of the Brazilian real relative to the U.S. dollar—the currency has slipped some 8 percent against the greenback year-to-date—has added to U.S. investors’ concerns.
A stronger dollar negatively impacts returns for U.S. investors who have exposure to local Brazilian equities. In the past 12 months, that currency factor has meant U.S. investors have lost 20 percent of their investments in Brazil ETFs relative to local investors, according to data compiled by IndexUniverse.
One way for investors to protect themselves from such dollar-real shifts is the db-X MSCI Brazil Currency-Hedged Equity ETF (DBBR), which essentially takes the currency variable off the table. It has $4.2 million in assets.
Nonetheless, in the past year, owning DBBR would have allowed investors to dodge the real’s 20 percent decline against the dollar, clearing the decks to match the returns of local investors of around 10 percent, according to IndexUniverse’s weekly “ FX Impact ” data that come to us courtesy of MSCI.
The unhedged EWZ meanwhile remains down 4.5 percent year-to-date, having shed some 10 percent of value in the past year. But the much smaller $72 million BRXX has managed to stay in the black, with gains of some 6.5 percent in the same period. BRXX has nonetheless, declined 2.2 percent in the past year.
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