The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) has been a decent performer over the past 90 days, rising 4.6%, but since peaking on April 24, the largest exchange traded fund tracking stocks in Latin America’s largest economy is off more than 12%. That decline has EWZ investors heading for the exits.
With concerns that Greece is again the brink of default and departure from the Eurozone and confirmation that Puerto Rico is unable to pay $72 billion in debt, global equity markets were roiled Monday. Emerging markets were particularly vulnerable, resulting in EWZ closing at $32.53, its lowest levels in a month. [Bail or Buy With Brazil ETFs]
“Brazilian shares have dropped 8.8 percent from this year’s high as the nation struggles to shore up the budget and keep its investment-grade credit rating at a time when the economy is set for the worst recession in 25 years. Stocks joined a global rout Monday after Greece shut lenders and imposed capital controls, a measure that will deepen the country’s recession and risk driving it out of the euro,” reports Denyse Godoy for Bloomberg.
Slack GDP estimates and a tumbling real are among the downside catalysts pressuring Brazilian stocks and EWZ. Brazil’s planning ministry attributes a major portion of the turn to the projected depreciation of about 21% in the real currency against the U.S. dollar. The ministry expects the real to end 2015 at R$3.22 from R$2.66 at the end of 2014. The real is already traded at a high of about R$3.29 back in March. [Brazil ETFs Brace for Slowdown]
While investors have added money to the WisdomTree India Earnings Fund (NYSEArca: EPI), Market Vectors Russia ETF (NYSEArca: RSX) and the iShares China Large-Cap ETF (NYSEArca: FXI), the other major BRIC single-country ETFs, $796.5 million has been pulled from EWZ this year. In the current quarter, investors have pulled $343 million from EWZ while adding over $2 billion combined to FXI, EPI and RSX.
Among Latin America single-country ETFs this quarter, EWZ’s outflows are also the worst. While the iShares MSCI Mexico Capped ETF (NYSEArca: EWW) is lighter by almost $175 million, the iShares MSCI Chile Capped ETF (NYSEArca: ECH), iShares MSCI All Peru Capped ETF (NYSEArca: EPU) and the Global X FTSE Colombia 20 ETF (NYSEArca: GXG) have each added new investments.
Amid a corruption scandal at Petrobras (NYSE: PBR), Brazil’s state-run oil company and one of EWZ’s largest holdings, high interest rates, a rising current account deficit and slack economic growth, investors have grown impatient with EWZ and Brazilian stocks.
On Monday, the Financial Times reported that Petrobras slashed its five-year investment plan by 37% to adjust to the corruption scandal and slumping oil prices.
iShares MSCI Brazil Capped ETF