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Brazil ETFs Hit by Weak Currency, Slowdown Fears

tlydon@globaltrend.com (Tom Lydon)

ETFs tied to Brazilian stocks and the currency, the real, were among the worst performers in the second quarter. As a result, they are also among the ETFs trading farthest below their 200-day moving average, a key technical indicator.

The $7.5 billion iShares MSCI Brazil Index Fund (EWZ - News) lost 18.4% in the second quarter, while WisdomTree Dreyfus Brazilian Real (BZF - News) shed 7.9%, according to Morningstar.

The export-reliant Brazil stock and currency funds have been hurt by slowdown fears in China, and a stronger U.S. dollar.

EWZ, which invests in equities, does not hedge its foreign currency exposure so it suffers when the Brazilian real weakens against the dollar. [Brazil ETFs Gear Up for World Cup, Olympics]

BZF, the currency ETF, tracks the movement of the real versus the greenback.

The Brazilian real is trending lower in 2012 partly on central bank interventions. Brazil’s central bank has been buying dollars to weaken the real and provide support for the country’s exporters. Additionally, it has been slashing interest rates from high levels in an effort the jumpstart the economy.

Europe’s ongoing debt crisis has also punished emerging market currencies such as the Brazilian real.

Export-driven Brazil and the ETFs are sensitive to moves in commodities markets.

“Dents to Brazil’s economic outlook will hurt equities and spur further rate cuts, which in turn will hurt the real and wallop equities again,” Morningstar notes in an analyst report on EWZ.

EWZ is currently trading 11.6% below its 200-day moving average, while Market Vectors Brazil Small-Cap ETF (BRF - News) is 12.2% under the indicator.

BZF, the currency ETF, is 13.3% below the 200-day average.

iShares MSCI Brazil Index Fund

WisdomTree Dreyfus Brazilian Real