Long Brazil ETFs, Short Rousseff Trade Works Again

In an extension of what has become a consistent, obvious trade, shares of the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) are up 3.5% Friday after another poll showed waning support for Brazilian President Dilma Rousseff.

In a poll conducted by Datafolha, 36% of those surveyed said they would vote for Rousseff, down from 38% earlier this month, reports Rogerio Jelmayer for the Wall Street Journal.

The latest news of eroding support for Rousseff sent shares of Petrobras (NYSE: PBR), Brazil’s downtrodden state-run oil company, higher by almost 6% on volume that appears poised to easily eclipse the daily average. Two Petrobras securities are found among EWZ’s top-10 holdings, combining for almost 12% of the ETF’s weight. [Petrobras Pushes Brazil ETFs Lower]

The db X-trackers MSCI Brazil Hedged Equity Fund (NYSEArca: DBBR), which hedges Brazilian real exposure and is home to a higher yield than many expect out of Brazil ETFs, is up 2.4% on volume that is already more than 40% above the daily average. Two Petrobras securities combine for 13.3% of DBBR’s weight.

Since Rousseff took office on Jan. 1, 2011, Petrobras has been the worst-performing major large-cap oil stock with a U.S. listing. Even BP (NYSE: BP), which had to contend with the aftermath of the largest oil spill in U.S. history, has outperformed its Brazilian rival over that time. [Brazil ETFs Soar as Rousseff Loses Support]

The trend of Rousseff’s pain equaling gains for Brazil ETFs goes back several months. Polls released in April and May that showed declining support for Rousseff sparked one-day rallies in EWZ and rival Brazil ETFs. On June 6, EWZ surged more than 3% after the previous Datafolha poll was released.