ETF Trends
ETF Trends

They’re not penny stocks, let’s just clear that up right off the bat. These are still large-cap (for how long is anyone’s guess), viable (we think) companies, but the fact of the matter is the downtrodden iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is allocating a fair chunk of its weight to stocks currently trading below $10.

After narrowly evading the 52-week low club yesterday, EWZ has been saddled with that ominous label today, shedding 3.3% on above-average volume. With a 3.5% loss on more than double the average daily turnover, the Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF) is in the all-time low club for a second consecutive day. [Bad News for Brazil ETFs]

As is often the case, slumping commodities prices are hampering Brazilian stocks and EWZ. Earlier today, the U.S.-listed shares of Brazilian iron ore giant Vale (NYSE: VALE) slipped below $5 for the first time since January 2005, reports Dimitra DeFotis for Barron’s.

“Morgan Stanley downgraded Brazil in its Latin America model today to Underweight, given the weak state of its economy,” according to Barron’s.

Vale has since reclaimed the $5 mark, but the shares have plunged 38.1% this year. Petrobras (NYSE: PBR), Brazil’s state-run oil company, is another member of the sub-$10 group. With today’s 5.3% loss, the stock is struggling to stay above the $6.50 area after falling 27.5% over the past month.

In February, Moody’s downgraded debt issued by Petrobras (NYSE: PBR) to Ba2, two levels below investment grade, stoking speculation regarding Brazil’s sovereign credit rating. 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. [Brazil ETF Slides, Bleeds Assets]

Brazil banks, which comprise nearly 32% of EWZ’s weight and lend to slumping commodities producers, are also found in the sub-$10 group. Itau Unibanco (NYSE: ITUB) and Banco Bradesco (NYSE: BBD), EWZ’s two largest financial services holdings, reside below $9 and $8, respectively.

Add up EWZ’s holdings of various Banco Bradesco, Itau Unibanco, Petrobras and Vale securities, and the result is over 31% of the ETF’s having U.S.-listed shares that trade below $10.

iShares MSCI Brazil Capped ETF