It is not a stretch to say most emerging markets investors are well acquainted with the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) and the frustration inflicted by the largest Brazil ETF over the past several years.
In 2014, a continuation of the EWZ frustration theme, the ETF lost 15.5%. That was the second-worst performance among the major Latin America single-country ETFs, trailing only theGlobal X FTSE Colombia 20 ETF (NYSEArca: GXG).
The WisdomTree Brazilian Real ETF (NYSEArca: BZF), which monitors shifts in the Brazilian real against the U.S. dollar, fell 2.1% last year concerns that the country’s poor fiscal health could lead to a ratings cut, and speculation that the Federal Reserve would tighten its monetary policies also diminished demand for Brazilian assets. [Reforms Could Lift Brazil ETF]
Fast-forward to 2015 and EWZ is trying to steady and rebound. With Wednesday’s gain of 2.7%, EWZ has turned modestly positive for the new year and some technical analysts see more upside for the ETF.
“We have noticed that when the Brazilian Exchange Traded Fund EWZ pulls back to the bottom of this downward sloping parallel channel, some explosive upside moves have come in the past,” according to Captain John Charts. “This is a monthly chart, so it is longer term in nature and requires that you wait till the end of month to act. Since it was able to regain its position at the end of last December, it looks actionable to us now.”
There is at least one crucial fact that makes EWZ’s 2015 upside, however modest, impressive: The ETF has not been battered by an almost 9.5% drop by Petrobras (NYSE: PBR), one of EWZ’s largest holdings. Shares of Petrobras, Brazil’s state-run oil giant, have been drubbed this year not only by falling oil prices, but a widening corruption probe, one that could ensnare Brazilian President Dilma Rousseff. [Bad Sequel for LatAm ETFs]
“A Reuters review of a 2009 federal investigation of Petrobras, and interviews with those who conducted it, indicates Rousseff missed opportunities to stop the graft before it erupted into a crisis so big it could push Brazil’s slow-growing economy back into recession next year,” Reuters reported.
Those are fundamental issues and for now, there is some reason for optimism that EWZ deliver near-term upside. The ETF is nearly 10% above its 52-week low and, given EWZ’s penchant for volatility, a 7.7% jump to its 50-day moving average is not out of the question in the coming weeks.
“Also is important is the fact it was able to hold a trend line that can be drawn across the 2000 top and along the 2008 bottom,” adds Captain John Charts.