The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest exchange traded fund tracking Brazilian equities, is once again setting a torrid pace with a year-to-date of about 15%. Some market observers believe stocks in Latin America’s largest economy can keep climbing.
Brazil’s central bank has not hiked interest rates since last year. Brazilian stocks have rallied this year and banks in Latin America’s largest economy appear inexpensive, those institutions are faced with declining consumer credit quality. Additionally, some Brazilian states have recently delayed payment to public workers, potentially crimping the ability of those workers to repay loans taken from Brazilian banks.
In fact, Brazil’s central bank recently unveiled a larger-than-expected interest rate hike that likel sets the stage for more of the same this year.
“Combine the prospects for interest-rate cuts with their higher carry-trade returns and two countries stand out as the best bets this year in emerging markets: Brazil and Russia,” reports Bloomberg. “In a survey of 16 investors and analysts conducted Jan. 23 to Feb. 1, the nations’ bonds and currencies got the strongest backing among 10 developing economies. China was the least favored.”
Banks in Latin America’s largest economy appear inexpensive, those institutions are faced with declining consumer credit quality. Analysts believe the same is true of Brazilian banks. After a couple of years of contracting, Brazil’s economy is expected to resume growing this year, a factor Brazilian stocks and ETFs could already be pricing in.