The iShares MSCI Brazil Capped ETF (EWZ) , the largest ETF tracking Latin America’s largest economy, has dealt with its share trials and tribulations. Slowing economic growth in China, a key destination for Brazilian commodities exports, coupled with a weak currency and weakness in the broader emerging markets complex tumbling into a bear market with a 23.1% loss through the first six months of this year.
The past month has been far more kind to Brazilian equities as the benchmark Bovespa has flirted with entering a bull market. EWZ has gained almost 10% since August 16 and things are looking up from a technical perspective. [BRICs Lead Emerging Markets ETFs]
Shares of EWZ “have come to life technically. Specifically, the shares have knifed to nearly three-month highs, clearing well-defined resistance. It’s now traversing less-charted territory, and the risk/reward can be favorable from current levels with a stop at the breakout point,” writes Michael Ashbaugh for MarketWatch.
The positive technical outlook on EWZ from Ashbaugh jibes with noted technical analyst Chris Kimble. In a post on Advisor Perspectives earlier this month, Kimble pointed out that EWZ looked as though it had formed a double bottom just below $42 and that the ETF was displaying good relative strength against the S&P 500.
Aside from the technicals, there have recently been other positive catalysts for EWZ. Last week, J.P. Morgan issued a bullish call on Vale (VALE), the world’s largest iron ore maker. Two Vale securities combine for 10% of EWZ’s weight, making the company the ETF’s second-largest holding behind Petrobras (PBR). [Good News for Big Brazil ETF]
Investors are also starting to put cash to work in EWZ. Although the ETF still ranks among the worst regarding year-to-date outflows, it has brought in over $484 million since the start of this month. Those inflows have coincided with a September gain of just over 10% for EWZ.
iShares MSCI Brazil Capped ETF
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.
- Chris Kimble