Brazil ETFs Surge as Pension Reforms Are Underway

Brazil country-specific exchange traded funds jumped Friday, with Brazilian markets hitting a new record, as the government’s highly anticipated pension reform bill cleared a key hurdle in Congress.

Among the better performing ETFs of Friday, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest Brazil-related ETF, increased 3.2%.

Brazil’s special pension reform committee in Congress passed the basic bill by a vote of 36 to 13, and the reform bill could only need two weeks from passing through with the full lower house approval, Reuters reported.

The pension reform bill will to generate savings of around 1 trillion reals, or $264 billion, over the next 10 years, which most analysts’ and Economy Minister Paulo Guedes aimed for.

Central bank President Roberto Campos Neto repeated their view that progress on reforms is a critical component to managing inflation and that the rate outlook depends on economic activity, along with the balance of risks for inflation.

The lower house will be ready for the lower house plenary vote and approval before Congress breaks for recess on July 18.

“We believe that risks of additional dilution of the total fiscal savings in the Senate are very low,” Credit Suisse analysts wrote in a note to clients.

The recent rally in Brazilian equities was a stark turnaround from earlier this year when pessimism over the likelihood of a pension reform bill, along with political unrest and economic uncertainty, beset the market.

Furthermore, with greater stability and a better handle on inflation, Brazil’s central bank could move forward with interest rate cuts or a looser monetary policy in the coming months to help the country better combat deteriorating economic growth. Consequently, the more optimistic outlook helped provide a boost to risk assets and push Brazilian markets to record highs.

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