Brazilian equities have been slipping over the past few weeks, with some country-related ETFs recently testing their long-term trend lines, but the emerging market was leading the charge on Thursday’s rebound.
The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest Brazil-related ETF, jumped 3.2% Thursday after testing its support at the 200-day simple moving average. EWZ has declined 12.3% over the past month.
The VanEck Vectors Brazil Small-Cap ETF (NYSEArca: BRF) and the iShares MSCI Brazil Small-Cap ETF (NYSEArca: EWZS) were also among the best performers Thursday, rising 3.4% and 3.2%, respectively.
Despite the recent weakness in Brazilian equities, the growth story for the emerging market may remain intact.
“Looking forward, it appears that growth rates for the external sector and private credit creation, are improving,” Alan Longbon said on SeekingAlpha. “The large government sector flows look to be maintainable for years given the political gridlock has taken place at a time of high flow rates. There is scope for financial assets such as stocks, bonds, and real estate to rise given that the private sector is receiving a positive inflow of funds.”
Longbon attributed the recent weakness to sentiment rather than economic factors, which may open up a buying opportunity for those whom believe that the Brazilian growth story still has legs due to strong macro-fiscal flows.