One of the brightest stories in this year’s resurgence for emerging markets equities and ETFs has been Brazil.
For much of this year, Latin America’s largest economy has been home to one of the world’s best-performing equity markets.
However, clouds are again surfacing for Brazilian stocks and the once scorching hot iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest exchange traded fund tracking Brazilian equities. EWZ is still up 58% year-to-date, an undoubtedly impressive performance, but the ETF has tumbled more than 8% over the past week and is dangerously close to falling to its 200-day moving average.
Related: Brazil ETFs Roar Back as Government Incompetence Ends
Last month, Brazil’s central bank lowered the benchmark Selic rate by 25 basis points to 14%. That is still one of the world’s highest benchmark interest rates, but the rate cut could be a sign that the central bank there is growing confident that inflation is ebbing and that the local economy is improving.
Earlier this year, EWZ surged on optimism that President Dilma Rousseff will finally be removed from office and that a new administration may steer the economy toward growth. Brazilian markets strengthened on hopes that acting President Michel Temer, who will remain as the country’s leader if the Senate decides to impeach Rousseff, will be to renew economic growth and damp corruption that has long plagued the Brazilian economy.
[related_stories]As is the case with Mexico, Brazil is seen as potentially vulnerable to President-Elect Donald Trump’s trade policies.