After its worst annual performance since the financial crisis, the Brazil exchange traded fund may outperform most emerging and developed markets as foreign investors come back to Brazilian equities.

The iShares MSCI Brazil (NYSEArca: EWZ) holds the country’s largest companies, such as the Petroleo Brasileiro SA and Itau Unibanco Holding. EWZ is up 12.91% year-to-date after dropping 26% in 2011, it’s wost performance since 2008, reports Tal Barak Harif for Bloomberg. [ETF Spotlight: Brazil]

In comparison, the iShares MSCI Emerging Markets Index is 8.2% higher year-to-date and the iShares MSCI Developed Market Index has risen 3%.

Brazilian investments have become more attractive after the government suspended the “IOF” levy on foreign stock purchases back in December. It was part of the broader tax cuts used to help mitigate the influence of the European debt crisis and a potential global slowdown.

“The IOF Tax is no longer an overhang which has dragged EWZ performance for two years,” Rebecca Cheong, an equity derivatives strategist at Societe Generale, said in the report.

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