Amid a slew of domestic issues, including a labor strike, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest ETF tracking Brazilian equities, tumbled nearly 15% last month.
EWZ now labors 26% below its 52-week, confirming that Brazilian stocks are in another bear market. Some market observers believe that investors looking for value in Latin America’s largest economy should exercise patience.
“Global jitters and a devastating national truckers’ strike combined to make May an awful month for the No. 3 emerging market by capitalization. The iShares MSCI Brazil exchange-traded fund (ticker: EWZ) plunged by 15%, while the currency, the real, lost 6% against the dollar,” reports Craig Mellow for Barron’s. “But investors are not rushing to make rebound bets until they see more clarity around a wide-open presidential election scheduled for October.”
Tepid Data for Brazil Economy
Economists surveyed by the central bank have lowered their 2018 gross domestic product outlook to 2.5%, or 0.4 percentage points lower than the four months prior. The recent trucker strikes has also lead to Alfredo Coutino, Latin America director for Moody’s Analytics, to lower 2018 growth expectations to 2%, with knock-on effects potentially dragging it even lower.
Related: Domestic Troubles Weigh on Brazil ETFs
Weak data points and a slumping real could prevent Brazil’s central from lowering interest rates again, which would disappoint investors betting on multiple rate cuts in Brazil at the start of this year.
“Valuations in Brazil may be attractive after its big bear swing, but not attractive enough to outweigh the volatile backdrop,” according to Barron’s.
EWZ resides nearly 16% below its 200-day moving average. Investors have added $104.45 million to the fund since the start of the current quarter. Still, political volatility looms large for Brazilian assets, a scenario that could be heightened because the front-runner in the upcoming national election is drawing comparisons to U.S. President Donald Trump.
“The tentative front-runner, Jair Bolsonaro, has been dubbed the Trump of the Tropics. Like the U.S. prototype, he is more consistent in his strident reactionary emotional tone than on any concrete economic policies,” reports Barron’s.
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