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EWZ in Focus on Huge Inflow Last Week

Sweta Jaiswal, FRM

Amid the Sino-US trade deal uncertainty and Brexit suspense, BlackRock’s iShares MSCI Brazil ETF EWZ saw the highest inflow in eight months last week. Notably, the fund witnessed a $126-million net inflow in the period. Per Bloomberg, since withdrawals of around $358 million in a week in June 2019, the fund has been witnessing lower asset movement (read: Earnings Surprise May Lift Stocks: Buy These Growth ETFs).

Let’s see what is adding to the fund’s investment value.

Monetary Easing Policy

In order to stimulate economic growth, the Central Bank of Brazil is expected to continue to cut interest rates. Brazil’s economy is improving at a slower-than-estimated rate along with tepid inflation levels in spite of having record low interest rates. In fact, analysts had cut benchmark interest rate expectations last week from 4.75% by the end of 2019 to 4.5%.

Social Security Reform Bill

Brazil’s social security reform legislation is nearing approval. It will soon be presented for a final voting round in the Senate. The bill will bring major changes to the Brazilian government accounts, with increased focus on retirement rules. The agenda behind the bill is expense reduction. Thus, the country is expected to witness a decline in the fiscal load in the medium term. Analysts also believe that the approval of the bill will improve market conditions for a short period. 

Sino-US Trade Deal Optimism

A slowdown in global economic growth is being observed since Trump waged the trade war with China.The International Monetary Fund recently cut global growth expectations for this year to the lowest since 2009. According to IMF, the global economy is expected to expand 3% this year in comparison to July’s forecast of 3.2%.

The global growth estimate for 2020 has also been slashed to 3.4% from 3.5%. Slowing global economic growth, largely due to trade war tensions, has been the major reason for the fifth straight cut in global growth outlook. Thus, signs of improving relationships between the world’s largest economies are making investments in some emerging markets very attractive.

In fact, the latest round of progressive statements from the United States and China is increasing confidence in the successful completion of the ‘phase 1’ deal. In this regard, China’s Vice Foreign Minister Le Yucheng recently expressed optimism about the Sino-US trade talks. White House adviser Larry Kudlow recently said that the scheduled tariffs for Dec 15 could be scrapped if the trade talks take a healthy and positive turn.

ETF in Focus

iShares MSCI Brazil ETF 

The fund seeks to track the investment results of the MSCI Brazil 25/50 Index and provides exposure to large and mid-sized companies in Brazil. It comprises 56 holdings in its basket. The fund has amassed $8.61 billion in its asset base and charges a fee of 59 bps a year. EWZ has gained 12% in the year-to-date period. It has a Zacks ETF Rank of 3 (Hold) with a High risk outlook (read: Country ETFs to Watch as Trade Rout Continues).

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iShares MSCI Brazil ETF (EWZ): ETF Research Reports
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