Down more than 22% year-to-date, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is bleeding assets. EWZ, the largest exchange traded fund tracking stocks in Latin America’s largest economy, is also one of this year’s worst-performing single-country emerging markets ETFs.
After rallying in July, EWZ has given back all of those gains and then some, slumping more than 15% in August, prompting investors to head for the exits.
“The $6 billion iShares MSCI Brazil ETF, or EWZ, has had about $710 million of outflows in August, the most in its history. The BlackRock Inc. fund, which started in July 2000, hasn’t seen a day of inflows since June 18,” reports Bloomberg.
Political volatility and slumping commodities are among the factors weighting on Brazilian finanicial markets.
Political Woes for Brazil
Brazil holds national elections in October. Last month, stocks there rallied after several parties began to support center-right presidential candidate Geraldo Alckmin in the upcoming election.
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Leaders of Brazilian center parties forming the so-called Centrão, which forms the coalition of DEM, PP, Solidariedade, PR, Avante, PRB and PHS, stated they will support Alckmin in this year’s election in October, Folha de S.Paulo reports. The coalition would provide Alckmin with greater political reach and the best recognition through television advertisements.
“The latest wave of opinion polls in Brazil show that market-friendly presidential candidate, former Sao Paulo Governor Geraldo Alckmin trails and highlighted voter support for the Workers’ Party, known as PT,” according to Bloomberg. “In the first half of the year, EWZ had almost $630 million of net inflows. But that changed in July as investors pulled $342 million.”
Despite the difficulty in predicting the next president, there are still constructive drivers that should benefit stocks over the next few months. For instance, J.P. Morgan expects Brazil to post the best corporate earnings growth in 2018 among Latin American peers. Additionally, a number of its industries are linked to commodities, which benefit from a weaker real currency.
For more information on the Brazilian markets, visit our Brazil category.