“The Brazilian economy is in shambles. Exports are in a free fall down 24% year-over-year. Industrial production is declining at the fastest year-over-year rate since 2009 and has had a negative year-over-year growth rate for 16 months. The unemployment rate has spiked to a five-year high while retail sales are declining at a pace last seen in 2003. Finally, even with excess capacity in the economy increasing and consumption slowing, Brazil is combating inflation as the CPI increased at 9.5% year-over-year rate in August. With this type of economic back drop its fairly easy to understand the pressure that Brazilian stocks have been under. What is harder to understand is how valuations have stayed so high,” according to a Seeking Alpha post.
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]
iShares MSCI Brazil Capped ETF
