Amid Recovery, Brazil’s ETF Shows Its Might

After noticing the potential for an asset bubble, investors have been pulling money out of Brazilian stocks and exchange traded funds (ETFs). Nevertheless, Brazil is proving to be a robust economy as both consumption and exports rise.

Angel Gurria, Organization for Economic Cooperation and Development (OECD) chief, said that there’s “a danger of asset bubbles in places like Brazil… and we should be careful about that,” as stated in MecroPress. The statement came as investors also noticed the risk and began funneling more than $500 million out of the Sao Paulo stock market in January. [How to Cope with Risk in Latin America.]

Brazil’s currency, the real, has also depreciated to its lowest point against the U.S. dollar since Sept. 2, 2009. Brazilians officials are actually satisfied with the depreciation since a stronger dollar helps competition and promotes Brazilian exports.

Finance Minister, Guido Mantega, believes that the economy is stable enough to begin withdrawing stimulus measures. With consumption and exports on the rise, the Brazilian government is estimating an economic growth of 5.2% for the year. [What's Going Right for Brazil.]

Brazil’s Central Bank may wait till April to start raising rates, report Andre Soliani and Iuri Dantas for Bloomberg. Some traders expected the Central Bank would increase rates in March, which caused short-term contracts to fall recently. The Central Bank has been signaling for a rate increase so as to keep inflation in line.

According to the Central Bank’s survey, the median forecast of about 100 economists show that inflation could jump to 4.62% by year-end. The government’s inflation target is 4.5%.

For more information on Brazil, visit our Brazil category.

• iShares MSCI Brazil (NYSEArca: EWZ): up 112.4% year-to-date

• Market Vectors Brazil Small Cap (NYSEArca: BRF): up 18.7% in the last three months

• WisdomTree Dreyfus Brazilian Real (NYSEArca: BZF): up 34.6% year-to-date

Max Chen contributed to this article.