“The almost doubling of the SELIC over the last 4 years came against a backdrop of deteriorating economic conditions, a counter-cyclical tightening forced on the central bank by capital flight and inflation together with a collapse of commodity prices that … undermined the country’s trade position. The result was a simultaneous deterioration in the local equity market and currency that, at its worst point in early 2016, destroyed almost 80% of the IBOV index,” according to Marketfield Asset Management note posted by Dimitra DeFotis of Barron’s.
While there can be no guarantees of more rate cuts in Brazil, some traders are betting on more coming later this year or next year.
Related: How Central Banks Affect LatAm ETFs
It seems Brazil ETFs are reflecting as much. On Thursday, just 19 ETFs hit 52-week highs, but six Brazil funds, including the aforementioned EWZ, were among that group.
“Of course there are dangers ahead. Brazil’s domestic inflation rate has been running at a high level, but this should be helped by the strong recovery of the BRL. Unemployment has also risen considerably and both personal and corporate credit delinquency are much higher than they were 3 years ago,” according to the Marketfield note posted by Barron’s.
For more information on the Brazilian markets, visit our Brazil category.
iShares MSCI Brazil Capped ETF (NYSEArca: EWZ)