Already in the midst of a rally that has seen it surge 15.5% over the past 90 days, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) could add to those gains Tuesday after another Brazilian poll showed waning support for President Dilma Rousseff and rising support for one of her challengers.
According to a Datafolha poll released late last week, Marina Silva, who assumed the mantle for the Brazilian Socialist Party following the death of Eduardo Campos last month, has a 10-point lead against the incumbent Rousseff, Bloomberg reports.
What is crucial about that poll, and for EWZ’s near-term fortunes, is that it pertains to a scenario where Silva and Rousseff beat Social Democratic candidate Aecio Neves and head to a run-off after Brazil’s national elections in October. [Brazil ETF Extends Silva Rally]
Under Brazilian law, a run-off can only be averted if one candidate captures a greater percentage of the first round vote than the other two candidates combined.
Still, a poll showing a 10-point advantage for Silva of Rousseff could be good for some more upside for EWZ. The ETF closed at $50.70 last Friday, its highest levels since May 2013.
As has been the case for much of EWZ’s rally, the upside has been induced by waning support for Rousseff and, more recently, Silva’s increasing popularity. EWZ surged 6% last week despite confirmation that Brazil, Latin America’s largest economy, has entered a recession. [Weak Spots in Emerging Markets ETFs]
Some market observers have warned that even professional traders may be pricing in post-election price action in Brazilian stocks that is comparable to what has been seen this year in India and Indonesia.
“The issue we have with the current market sentiment is that Brazil is not a country pushing through meaningful economic reforms right now. Too many professionals are hoping that the election outcome will lead to better economic prospects and asset price appreciation as seen in the countries that actually are reforming, such as India and Indonesia,” said Rareview Macro founder Neil Azous in a recent research note.
Technical analysts have mostly bullish views of EWZ. “With a point & figure first target of 64, makes sense to us to continue to add on pull backs here,” according to Captain John Charts.
A move to $64 by EWZ would represent 19.1% upside from last Friday’s close.
iShares MSCI Brazil Capped ETF
