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.
The iShares MSCI Brazil Capped ETF is the largest Brazil-related U.S.-listed ETF on the market. The fund tracks large- and mid-sized companies in Brazil, including a heavy tilt toward financials at 36.5%, followed by consumer staples 15.6% and materials 13.8%. EWZ also includes big names like Itau Unibanco 11.7%, Banco Bradesco 8.6%, Ambev 8.3% and Vale 7.5%, among others.
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The iShares MSCI Brazil Small-Cap ETF acts as the counterpart to EWZ, tracking small-cap Brazilian stocks. Unlike its large-cap counterpart, EWZS focuses on consumer discretionary 40.0%, utilities 13.6% and industrials 10.9%.
The VanEck Vectors Brazil Small-Cap ETF is also comprised of small-cap Brazilian companies, with similar sector tilts, including consumer discretionary 33.1%, utilities 16.3% and industrials 10.8%. When compared to EWZS, BRF has a slightly bigger tilt toward small-cap stocks or a less mid-sized stock exposure. Specifically, BRF holds 63.6% mid-caps and 33.3% small-caps while EWZS holds 69.9% mid-caps and 28.5% small-caps.
For more information on the Brazilian markets, visit our Brazil category.