Government price controls that prohibit Petrobras from raising local gasoline prices have hampered the country’s refining business, shares of Petrobras and EWZ. Two Petrobras securities combine for 10.4% of the ETF’s weight, making it the largest holding in the largest Brazil ETF.

After a year in which it ranked as one of the 10 worst ETFs in terms of outflows, EWZ ranks among the 10 worst non-leveraged ETFs in terms of performance to start 2014. [Emerging Markets ETFs Refuse to Bounce Back]

In the past year, shares of Petrobras have plunged almost 36% while EWZ is flirting with a loss of almost 30%. Over the same time, the Energy Select Sector SPDR (NYSEArca: XLE) and the iShares Global Energy ETF (NYSEArca: IXC) have traded higher.

Traders see more downside ahead for EWZ. On Tuesday, “we saw buyers of February 39 puts in EWZ, which are out of the money given EWZ trading around the $42 level at the time, but still a realistic strike given the volatility and general selling pressure we have been accustomed to seeing in this particular product,” according to Street One Financial. [Down and Out in Rio]

Betting on Petrobras to ameliorate the situation for EWZ appears dicey. Petrobras’ indebtedness is the highest among the world’s major oil companies, according to Thomson Reuters data.

EWZ, Petrobras 1-Year Performance Against XLE, IXC

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