If Brazil takes the World Cup, the euphoria could spill over to the Brazilian equities and exchange traded funds. However, some emerging market observers are less sanguine, contending that the country will remain a wreck, regardless of the outcome.
The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) has declined 3.6% over the past week, but the fund is still up 7.8% year-to-date. [Pre-World Cup Bounce for Brazil ETFs]
“There’s no upside for this government, even if everything goes well,” Drausio Giacomelli, head of emerging markets research at Deutsche Bank, said in a CNBC article. “It’s not about (if Brazil wins the World Cup), it’s about what it exposes: a government that’s unable to deliver what they say the people need for education, for transportation, infrastructure in general. They can give stadiums … but not what matters.”
Despite the build up ahead of the Cup, the Brazil infrastructure ETF, EGShares Brazil Infrastructure Index Fund (NYSEArca: BRXX), has only retruned 1.7% year-to-date. [Ahead of World Cup, Brazil Infrastructure ETF Looks for Upside]
Moreover, Brazil’s monetary policy has been lackluster under President Dilma Rousseff.
“Brazil has gotten it wrong since the beginning of the Dilma cycle,” Giacomelli added, referring to the central bank’s recent rate hikes. “They put themselves in a situation that is the worst-case scenario for (emerging markets): stagflation—low growth and high inflation.”
Stifling economic growth, the stubbornly high inflation level has been a lingering problem in Brazil.
“Inflation is still a problem, and unfortunately in Brazil cutting rates won’t help growth,” Luis Oganes, global head of emerging markets research at JPMorgan Chase, said in the article. “You need reforms … and ahead of an election no one is going to invest more in Brazil if they cut rates.”
Brazil is scheduled to play against Chile on Saturday in the first of the World Cup’s knockout rounds.
iShares MSCI Brazil Capped ETF
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