A Brazilian Bounce

After slumping a bit earlier this month amid the sell-off in global equities, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest exchange traded fund tracking Brazilian equities, bounced back in epic fashion, surging about 8% last week.

Some market observers believe there is still upside to be had with EWZ and Brazilian stocks. Last year, EWZ trailed the widely followed emerging markets benchmark. Surging commodities prices, thanks to a weak dollar, are among the catalysts boosting Brazilian equities early in 2018.

“Selling pressure over the last few weeks has shaved roughly 10% off of EWZ’s share price, but the ETF looks to be finding a bottom. A breakout above $44.2 would be significant due to its recent consolidation pattern. Global equities look to be recovering, and with it, EWZ could potentially show relative leadership due to its economic fundamentals,” according to a Seeking Alpha analysis of EWZ.

Brazil, Latin America’s largest economy, is a major producer of an array of commodities, including iron ore, oil and sugar, meaning a weak dollar benefits Brazilian commodities producers. That much is evident as the real has surged against the greenback since early 2017. Additionally, Brazil’s central bank actively reduced borrowing costs last year and is expected to continue doing so in 2018. Plus, Brazilian stocks appear cheap relative to global benchmarks.