The story for exchange traded funds tracking Brazil, Latin America’s largest economy, has been easy to interpret this year. It goes something like this: ETFs, such as the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), typically rise on days when polling data shows bad news for President Dilma Rousseff and/or good news for her challengers, namely Brazilian Socialist Party candidate Marina Silva.
That was the case Wednesday when EWZ rallied after Tuesday’s poll, published by Brazilian Institute of Public Opinion and Statistics (Ibope) and the second since Silva assumed the mantle for the Brazilian Socialist Party following the death of Eduardo Campos, showed “that Rousseff captured 34 percent of voter intentions, down from 38 percent in the previous Ibope survey carried out earlier this month,” reports Telesur.
There are nascent signs some traders are willing to take on added risk with Brazil ETFs as the country inches toward October national elections that are undoubtedly among the most important in the emerging world this year.
Although EWZ traded lower Thursday, the Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF) and the iShares MSCI Brazil Small-Cap ETF (NYSEArca: EWZS) traded slightly higher. BRF and EWZS have soared an average of 14.7% over the past six months after touching multi-year lows in January. [Brazil ETFs Search for Bottoms]
BRF would be a predictable beneficiary of a Rousseff loss in October because many investors are betting her departure will trigger interest rate cuts. Brazil’s lending rates, among the highest in the developing world, are a drag on Brazilian consumers. In turn, that is a drag on BRF, an ETF that allocates 36% of its weight to consumer discretionary stocks.
Another, albeit slight sign of increased risk appetite with Brazil ETFs comes by way of the Direxion Daily Brazil Bull 3x Shares (NYSEArca; BRZU). Still small in stature, though not in potential for big gains, BRZU, the triple-leveraged answer to EWZ, saw its volume increase almost 47% over the trailing 20-day average for the five days ended Wednesday, according to Direxion data.
BRZU’s bearish equivalent, the Direxion Daily Brazil 3x Bear Shares (NYSEArca: BRZS), saw its volume climb nearly 21% for the week ended Aug. 27. BRZU has surged 39% since we highlighted the ETF in early April. [The Right Leveraged ETFs Right Now]
Market Vectors Brazil Small-Cap ETF
