Brazil ETFs Strengthen on Stimulus Measures

September 10th at 8:39am by Tom Lydon

The largest ETF for Brazil has been forming a base since May and is now trying to break out as the government attempts to kick-start the economy.

The iShares MSCI Brazil Index Fund (NYSEArca: EWZ) rose 2.8% in the past week and is 5.5% higher over the last three months. Nevertheless, the fund is still down 4.4% year-to-date. The ETF bounced last week at the 50-day simple moving average.

President Dilma Rousseff is pressuring banks to cut rates and reducing energy costs – electricity rates will drop an average 16.2% for households and 28% for producers – to help foster growth, Bloomberg reports. [Brazil Infrastructure ETF Builds Up on Stimulus]

“It’s a new concept, a new attitude,” Rousseff said in a national speech. “It means reducing production costs and the price of goods to generate jobs and income.”

Rousseff also promised to create conditions for lower interest rates and diminish taxes while maintaining fiscal discipline.

Moreover, the Brazilian president promised to keep a “fairly valued currency” – the real has depreciated 8% against the U.S. dollar this year and currently trades at around BRL2.03 to the U.S. dollar.

The Brazilian economy expanded a lower-than-expected 0.4% in the second quarter from the previous three months. Analysts project the economy to grow 1.64% this year.

Recent moves into Brazil and other emerging market assets may be attributed to the European Central Bank’s confirmation Thursday that it will start its “unlimited” debt buying plan.

“The new measures pushed up emerging-market currencies and stock markets generally,” Clodoir Vieira, economist with Corretora Souza Barros, said in a Wall street Journal article. “The bonds purchases will free up more funds which should find their way into investments in emerging markets because Europe’s interest rates are so low.”

It should be noted that some Brazil-related ETFs do not hedge currency risks. Consequently, a depreciating real may diminish the overall performance of Brazil ETFs.

Brazil is one of the closely-watched BRIC countries along with Russia, India and China that are seen as important cogs in emerging markets and drivers of the global economy.

Other Brazil ETFs include:

  • Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF)
  • iShares MSCI Brazil Small Cap Index Fund (NYSEArca: EWZS)
  • Global X Brazil Mid Cap ETF (NYSEArca: BRAZ)
  • First Trust Brazil AlphaDEX Fund (NYSEArca: FBZ)

iShares MSCI Brazil Index Fund

For more information on Brazil, visit our Brazil category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.