All those ominous thoughts folks have about Friday the 13th are applying to Brazil exchange traded funds today. In what amounts to just another day at the office for this embattled group of ETFs, five of the 21 ETFs that have hit all-time lows to this point in Friday’s session are Brazil funds.
That quintet does not include the Direxion Daily Latin America Bull 3x Shares (NYSEArca: LBJ), which tracks a Brazil-heavy index. Nor does that group of five include theiShares MSCI Brazil Capped ETF (NYSEArca: EWZ).
EWZ, the largest and most heavily traded ETF tracking Latin America’s largest economy, is hitting what look like new 52-week lows, but as we noted last week, investors should not be deceived because EWZ’s new lows are much worse than the 52-week variety. The ETF is heading for its first close below $30 since August 2005 as the Brazilian real slides to its lowest levels in 12-years. [Brazil ETFs are Really Bad Right Now]
That has the WisdomTree Brazilian Real ETF (NYSEArca: BZF) in Friday’s new all-time low club, bad news for a fund that is already this year’s worst-performing currency ETF. [Strong Dollar Saps EM ETFs]
As the Wall Street Journal reports, traders are miffed by the ineptitude of the Brazilian central bank in defending the real. While more than 20 global central banks have lowered interest rates this year, Brazil cannot follow suit because the real is already tumbling and inflation there remains high. However, with a benchmark borrowing rate of 12.75%, one of the highest in the emerging world and one that is up nearly 200 basis points in the past year, Brazil makes for an unlikely booster of rates.
A widening corruption probe, one that has ensnared Brazilian President Dilma Rousseff, has sent American depositary receipts of Petrobras lower by nearly 18% this year. Making matters worse is that it is now widely known that Rousseff had ample opportunity to stop graft at Petrobras.
“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. Rousseff served as Petrobras chairwoman from 2003 to 2011. [Giving up on Brazil ETFs]
Friday, protests took to Brazilian streets in support of Petrobras and Rousseff, perhaps further irritating investors that endured a tumble that has seen the Brazilian oil giant be the worst-performing oil stock in the world over the past five years.
Still, short selling and bearish options activity in EWZ has been light.
“Options flows in EWZ have never returned to “pre-election” levels, and we are hard pressed to find any significant trends at these levels (EWZ with another new “low” handle today of $29), although the fund has seen >$275 million flow out via redemption activity year to date, eroding its asset base to the $3.1 billion mark. We suspect BRZS (Direxion Daily Brazil Bear 3X) would be popular in this environment so it is a shame that the issuer chose to de-list the product some time ago,” said Street One Financial Vice President Paul Weisbruch in an email exchange with ETF Trends on Friday.
To be precise, investors have pulled about $276 million from EWZ this year, or about $181 million less than has been pulled from the iShares MSCI Mexico Capped ETF (NYSEArca: EWW).
iShares MSCI Brazil Capped ETF
