The beleaguered Brazilian has suffered from a multi-year retreat, and the selling pressure has been overdone, potentially opening an opportunity for emerging market exchange traded fund investors.
The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) has declined 39.9% over the past year and showed an average -26.3% annualized return over the past three years. The market is starting to turn around, with EWZ 11.1% over the past week.
In contrast, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) fell 23.3% over the past year and returned an average -9.0% over the last three years. The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) declined 22.9% over the past year and return an average -9.6% over the past three years. Brazil makes up 5.6% of EEM’s portfolio and 6.5% of VWO.
After the extended rout in Brazilian equities, Mark Mobius, chairman of the emerging markets group at Franklin Templeton, raised his position in this Latin American market, arguing that the developing markets could outperform their developed counterparts as the weaker currency bolsters exports, Bloomberg reports.
In Brazil, the real currency has depreciated for five-straight years while the equity benchmark has declined for three years, the longest extended falloff in a decade.
The Brazilian equities market weakened as the government struggles to support up its finances amid political problems and efforts to oust President Dilma Rousseff. Meanwhile, the economy is suffering through its worst contraction in a century, with interest rates are at their highest since 2006. Mobius believes policy changes like tax and labor reforms will be needed to sustain an economic recovery.