Brazil ETFs in Search of Bottoms

Scour Friday’s headlines pertaining to emerging markets economies and stocks and there is an excellent chance more bad news than good will be found.

Brazil, Latin America’s largest economy, made its share of contributions to the end-of-week emerging markets carnage. Already grappling with the effects of slumping commodities demand and a weak real, the country said its current account deficit grew to $8.7 billion last month from $5.1 billion in November. Economists expected a deficit of $6.8 billion and foreign direct investment plunged to $6.5 billion from $8.3 billion, Matthew Malinowski reported for Bloomberg.

That news was revealed on the same day that Petrobras (NYSE: PBR), Brazil’s state-run oil company, cascaded to its lowest closing price since June 2005. At Friday’s close around $11.75, Petrobras closed more than $6 below its 2008 low.

As we noted earlier this week, Petrobras is weighing on the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), which makes sense since the stock is EWZ’s largest holding. To be fair, Petrobras is not the only Brazilian stock hampering EWZ. Iron ore giant Vale (NYSE: VALE) lost almost 2% Friday. Steelmaker Companhia Siderúrgica Nacional (NYSE: SID), a smaller EWZ holding, lost almost 4%. [Petrobras Plaguing Brazil ETF]

Those negative catalysts sent EWZ to 3% loss on the day. Earlier Friday, the ETF touched a new 52-week low and in a sign that sellers mean business in the largest Brazil ETF, volume was nearly 39% above the daily average. [Down and Out in Rio]

EWZ closed slightly below $40, which could prove ominous because that price has previously stood as critical support for the ETF. EWZ flirted with $40 in late August before surging to over $50 in mid-October.

Unfortunately for Brazil ETF bulls, if there are any left, EWZ is far from the lone Brazil ETF offender. Thirty-eight ETFs hit new 52-week lows Friday and eight  were Brazil funds. That group of eight does not include multi-country funds with significant Brazil exposure, such as the iShares Latin American 40 ETF (NYSEArca: ILF).