After ranking as one of last year’s best-performing single-country exchange traded funds, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest exchange traded fund tracking Brazilian equities, is on a tear again this year.
EWZ is up more than 13% to start 2017 and there are potential catalysts that could carry the once downtrodden Brazil ETF to even larger gains. Brazil’s central bank could be of assistance with more interest rate cuts, something that has happened twice in the latter stages of 2016.
Brazil’s central bank has not hiked interest rates since last year. Brazilian stocks have rallied this year and banks in Latin America’s largest economy appear inexpensive, those institutions are faced with declining consumer credit quality. Additionally, some Brazilian states have recently delayed payment to public workers, potentially crimping the ability of those workers to repay loans taken from Brazilian banks.
The rebounding real currency is also helping matters.
“The strong real (NYSEARCA:BZF) brings more benefits than damage to the Brazilian economy at this particular point in its business cycle. The boost from easier USD funding is much greater than any setback caused from reduced competitiveness. The anticipation of this positive net effect on the economy fuels the rebound in Brazilian equities and can continue to do so,” according to a Seeking Alpha analysis of Brazil.