Making matters worse for Brazil is the fact that emerging markets such as China, India and Mexico saw growth rebound in the third quarter. At the ETF level, investors allocated cash to China and India funds last month, but continued pulling capital from Brazil ETFs, according to BlackRock. [Emerging Markets ETFs Hit by November Outflows]
EWZ has lost almost $3.6 billion in assets this year, making it one of the 10 worst ETFs in terms of outflows. Investors have pulled almost $221 million from BRF.
“Brazil is out of step due largely to heavy government stimulus over the past year that is starting to lose steam,” reports Reuters. Translation: The government’s best efforts to rejuvenate the once shining economy have yielded little in the way of tangible results.
High interest rates plus slack growth equal stagflation and a weak currency is crimping consumer spending. The WisdomTree Brazilian Real ETF (NYSEArca: BZF) is down 4.6% in the past month and the real’s weakness comes as the cost of imports in Brazil remains alarmingly high. For example, the Playstation 4 costs more than quadruple in Brazil what it does in the U.S., according to Reuters.
Some market observers believe an official recession in Brazil is unlikely, but should that scenario come to pass, it could put the country at risk for a credit rating downgrade. In October, Moody’s pared its outlook on Brazilian sovereign bonds to stable from positive while affirming the credit rating. Brazil currently has an investment-grade rating. [Bond ETFs Vulnerable After Moody’s Changes View on Brazil]
EWZ is trading 8.5% below its 200-day moving average and at its lowest levels since September.
iShares MSCI Brazil Capped ETF
