Both Standard & Poor’s and Moody’s Investors Service cut their outlook on Brazil’s credit rating to two levels above junk as the Brazilian government’s budget deficit expanded to 3.4% of GDP, the widest since 2009.
The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), which tracks Brazilian real-denominated large- and mid-cap stocks, has declined 19.9% year-to-date, exacerbated by a depreciating real currency. Meanwhile, the db X-trackers MSCI Brazil Hedged Equity Fund (NYSEArca: DBBR), which includes a currency hedged component against a depreciating real, has declined 10.4% year-to-date. However, if the real continues to appreciate, a hedged-equity ETF may not outperform a non-hedged ETF – a stronger foreign currency translates to a greater return when converted back into U.S. dollars. [Calendar Conundrum for Brazil ETFs in 2014]
WisdomTree Brazilian Real Fund
For more information on Brazil, visit our Brazil category.
Max Chen contributed to this article.