Brazil ETFs Could See Pressure as Coronavirus Cases Quadruple

Newsweek reported that the number of coronavirus cases in Brazil topped the 360,000 mark over the weekend as Brazilian president Jair Bolsonaro is receiving criticism for his response to the pandemic. As such, Brazilian exchange-traded funds (ETFs) could be an interesting play the next couple of weeks.

Bolsonaro’s administration was quick to tamp down criticism that the response is anything, but lackadaisical.

“Brazil and the USA have maintained important bilateral cooperation in the fight against COVID-19,” said Bolsonaro’s international advisor Filipe G. Martins. “In addition to the donation of 1,000 respirators announced today, the United States has already donated approximately $7 million to Brazilian efforts to mitigate the impacts of the coronavirus on our nation’s health and economy,” he noted.

“It is, as anyone can see, a productive and mature partnership, based on reciprocity and mutual respect between two democracies, very distant from the frictions or problems that the Brazilian media, as ignorant as malicious, insists on trying to invent,” Martins said.

A few ETFs to watch include the following:

  1. iShares MSCI Brazil Capped ETF (NYSEArca: EWZ): EWZ seeks to track the investment results of the MSCI Brazil 25/50 Index, which consists of stocks traded primarily on B3 (the largest Brazilian exchange). The index is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of the underlying index weight, and all issuers with weight above 5% do not cumulatively exceed 50% of the underlying index weight.
  2. WisdomTree Brazilian Real Strategy ETF (NYSEArca: BZF): BZF seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian real relative to the U.S. dollar. The fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in investments whose combined performance is tied economically to Brazil. BZF generally will maintain a weighted average portfolio maturity of 90 days or less with respect to the money market securities in its portfolio.
  3. iShares MSCI Brazil Small-Cap ETF (NasdaqGM: EWZS): EWZS seeks to track the investment results of the MSCI Brazil Small Cap Index. EWZS will invest at least 90% of its assets in the component securities of the underlying index and in investments that have economic characteristics that are substantially identical to the component securities of the underlying index. The index itself is a free float-adjusted market capitalization-weighted index designed to measure the performance of equity securities in the bottom 14% by market capitalization of equity securities listed on stock exchanges in Brazil.

For short-term traders looking to play Brazil’s response to the pandemic can use the Direxion Daily MSCI Brazil Bull 3X ETF (NYSEArca: BRZU) that seeks daily investment results equal to 200% of the performance of the MSCI Brazil 25/50 Index. The index is designed to measure the performance of the large- and mid-capitalization segments of the Brazilian equity market, covering approximately 85% of the free float-adjusted market capitalization of Brazilian issuers.

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