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Trading A Potential News Catalyst In Brazil

ETF Professor

Emerging markets equities are surging this year, but Brazil's participation in that rally is lagging. The MSCI Emerging Markets Index is up 33 percent, more than double the year-to-date gain posted by the MSCI Brazil 25/50 Index, a measure of the largest Brazilian stocks.


If the recent treatment of the Direxion Daily MSCI Brazil Bull 3X Shares  (NYSE: BRZU) is an accurate gauge, stocks in Latin America's largest economy could rally next year. BRZU looks to deliver triple the daily returns of the aforementioned MSCI Brazil 25/50 Index. That benchmark covers 85 percent of Brazil's total equity market capitalization. 


The usual warnings about leveraged ETFs being short-term trades and not long-term investments are particularly true with BRZU. The MSCI Brazil 25/50 Index has a three-year standard deviation of over 35 percent, making the 15.8 percent found on the MSCI Emerging Markets Index seem tame by comparison.


A Catalyst


Aggressive traders mulling a position in BRZU in 2018 may not have to wait long for the time to be right to consider the leveraged Brazil ETF. In February, Brazil's Congress could vote on the controversial issue of reduced pension benefits.


“The lower house of Brazil’s Congress will delay a vote on a bill trimming social security benefits until Feb. 19, Speaker Rodrigo Maia said on Thursday, pushing a decision on the cornerstone of President Michel Temer’s fiscal reforms into an election year,” reports Reuters. “Temer had said he hoped for a vote by next week, but he has struggled to rally lawmaker support for the unpopular pension cuts, which many investors consider essential to reining in Brazil’s surging public debt.” 


Some investors are concerned that Brazil's inability to trim social security benefits could threaten a still-fragile economic recovery.


Recent Bets


Fresh data points suggest traders are comfortable betting on a year-end rally for Brazilian stocks. For the five days ended Dec. 15th, BRZU's average volume was more than 28 percent above the trailing 20-day average, according to Direxion data


More importantly, traders are embracing BRZU. Over the past month, the leveraged Brazil ETF is averaging $1.8 million in daily inflows, good for one of the best totals among Direxion's leveraged bullish products.


Related Links:


Youthful Multi-Factor ETFs.


A Sinful New ETF. 

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