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Follow Goldman, Buy These Latin America ETFs

·3 min read

Global stock markets suffered historic losses in the first quarter of 2020 due to widespread coronavirus-induced selloffs. No wonder, emerging market (EM) economies were dealt a heavy blow, with Brazil being severely hurt (read: Best & Worst Broader Emerging Market ETFs of Q1).

However, stocks and ETFs of Brazil rebounded slightly of late with iShares MSCI Brazil ETF EWZ adding 11.3% in the past four weeks. Year to date (as of May 22, 2020), the fund is down 48% versus 8.7% decline in the S&P 500.

The coronavirus pandemic and the related worsening of the country’s fiscal positioning as well as political unrest deteriorated the case for Brazil investing this year. In late April, there was Brazil’s stock market slump, which was caused by the resignation of two top government officials. They quit over a disagreement with President Bolsonaro over the latter’s political interference in law enforcement that led to the firing the federal police chief.

However, this beaten-down Brazilian stock market looks ready to rally ahead. Let’s tell you why.

What Could Lead the Likely Outperformance of Brazil Going Forward?

Brazil's real gained decently after the central bank said last week that it is ready to beef up support for the currency. “The central bank President Roberto Campos Neto said the bank would dip into its large pool of foreign exchange reserves and continue intervening in the currency market if needed, to support the currency which has lost close to 30% of its value against the dollar so far this year,” per Reuters.

If this was not enough, Goldman Sachs expressed optimism on Brazilian equity investing. “Brazilian stocks will benefit from the growing appetite for risky assets and a recovery in commodities prices during the second half of 2020, per Goldman strategists led by Kamakshya Trivedi, as quoted on Bloomberg. “Brazilian equities are an ideal bounce-back candidate,” they believe. The Brazilian benchmark Ibovespa index is about to gain 9% from here.

EWZ was up 11.3% in the past four weeks, while First Trust Brazil AlphaDEX Fund (FBZ) (up 10.4%) and iShares MSCI Brazil Small-Cap ETF EWZS (up 10.2%) also posted solid performances past month.

Mexico May Gain Too

Goldman Sachs believes the whole“Latin America offers the most value in EM equities”. Continued underperformance this year strengthened the value quotient in the zone.  Notably, Mexico should benefit out of oil price recovery, iShares MSCI Mexico Capped ETF EWW is down 32% this year but added 13.3% past month (as of May 22, 2020).

However, since Argentina defaulted on sovereign bond payments amid COVID-19 issues, trading on Latin American equities could remain volatile in the near term (see all Latin American Equities ETFs here).

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iShares MSCI Brazil ETF (EWZ): ETF Research Reports
First Trust Brazil AlphaDEX ETF (FBZ): ETF Research Reports
iShares MSCI Mexico ETF (EWW): ETF Research Reports
iShares MSCI Brazil SmallCap ETF (EWZS): ETF Research Reports
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Zacks Investment Research
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