The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest exchange traded fund tracking Brazilian equities, and Brazilian American Depositary Receipts (ADRs) dealt with some drama Wednesday as media reports revealed Brazil’s Supreme Court has launched a new corruption probe targeting some high-level public officials.
Some investors are reevaluating Brazilian stocks, something that has benchmark indexes there trading at the highest multiples in a decade. However, Brazilian assets can be more appealing with the help of a weaker dollar and stronger commodities prices. The Brazilian real has been one of the better-performing emerging markets currencies this 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.
However, EWZ and Brazilian assets are not strangers to corruption fears. It was corruption allegations that were the undoing of former President Dilma Rousseff and ultimately forced her impeachment. The current administration is being stung by the new corruption investigation.