An Uh-Oh Moment for Brazil ETFs

Give the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) some credit.

The largest exchange traded fund tracking Brazilian equities rose nearly 1.4% Monday, although volume was light, despite news that President Dilma Rousseff improved her showing in a recent poll.

Teneo Intelligence notes that “Rousseff’s approval rating has actually increased from 34 to 38% – a level that tends to auger very well for incumbents a couple of months before elections,” reports Dimitra DeFotis for Barron’s.

Financial markets have overtly displayed a preference for any candidate not named Rousseff ahead of Brazil’s October elections, typically pushing EWZ noticeably higher on days when polls are released showing waning support for the incumbent. That trend was bucked Monday when EWZ gained despite news of increased support for Rousseff. [What’s Bad for Rousseff is Good for Brazil ETFs]

EWZ and other Brazil ETFS gained Monday because there is more than meets the eye to the aforementioned poll showing increased support for Rousseff. Marina Silva, the candidate replacing Eduardo Campos who died in a plane crash last week, has drawn nearly even Senator Aecio Neves. Campos was polling at around 8% prior to his death and news of his passing prompted a noticeable intraday sell-off in EWZ last Wednesday. [Brazil ETF Tumbles on News of Campos Crash]

Importantly, Silva could push Rousseff to a run-off and she “would command 47 percent of the vote in the second round, compared with 43 percent for Rousseff, a difference that falls just within the plus or minus 2 percentage point margin of error in a Datafolha poll published Monday, report Anna Edgerton and Raymond Colitt for Bloomberg.