Brazil’s economy and stock exchange traded funds will continue to drag their feet as weakening consumer spending could prolong the ongoing recession.
May retail sales in Brazil declined 0.9%, the fourth consecutive dip after a revised 0.5% drop in April, as an increasing unemployment rate, accelerating inflation and near record-low consumer confidence weigh on the economy, reports David Biller for Bloomberg.
“We do not expect a recovery of retail sales anytime soon,” Bruno Rovai, Brazil economist at Barclays Plc, said. “The labor market deterioration should continue for the next few quarters, consumer sentiment remains in the doldrums and the tightening of monetary conditions does not support the credit market.”
The Global X Brazil Consumer ETF (NYSEArca: BRAQ), which includes a 36% tilt toward discretionary and 50.5% position in staples, has declined 16.0% year-to-date while the broader iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) fell 9.2%. EWZ holds a hefty 20.4% position in consumer staples and 6.4% in consumer discretionary.
Moreover, Goldman Sachs Group Inc.’s chief Latin America economist Alberto Ramos argues that the high household debt levels, tighter credit market, higher taxes and increase in tariffs are further weighing on consumers.
“People are more defensive, they are more uncertain about the outlook for the economy and their own lives,” Ramos told Bloomberg. “Their inclination to spend on big-ticket items like an automobile, a flat screen television, or even an expensive vacation has been reduced.”