Brazilian equities have so far staged a huge rally this year on a weakening U.S. dollar, improving commodity prices and renewed confidence in the government after the ouster of President Dilma Rousseff. The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), which tracks MSCI Brazil 25/50 index of large- and mid-sized Brazilian companies, has been one of the best performing single-country ETFs of 2016, surging 58.6% year-to-date.
However, if the Olympics shines a spotlight on all the problems Brazil has been tackling with and tourists opted to stay home this time around, investors may consider inverse or bearish ETF options to hedge against a potential pullback. For instance, ProShares UltraShort MSCI Brazil Capped ETF (NYSEArca: BZQ) attempts to deliver two times inverse of the daily performance of the MSCI Brazil 25/50 Index.
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After the Summer Olympics, though, the index of the host country typically outperforms the global benchmark over the next one-year period. Based on recent historical data of the past eight Summer Olympics, the average percentage change of the local index one year after the closing ceremony was 23.8%, compared to the 10.7% change of the MSCI World Index, according to FactSet.
Investors who think they might be able to make a quick buck on Brazil during the Olympic events may be disappointed, especially after the recent run up in valuations.