The once hot iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest Brazil exchange traded fund trading in the U.S., saw some heavy outflows earlier this week as investors pulled money from Latin America’s largest economy.

“Investors pulled about $127 million from the $9 billion iShares MSCI Brazil ETF on Tuesday, the largest single-day withdrawal since August, as traders assessed the recent escalation in global trade tensions and mounting signs of disappointing growth in Brazil,” reports Bloomberg.

Brazilian stocks are expected to strengthen on the slowdown in U.S. Federal Reserve rate hikes, which is also expected to boost broader emerging markets as the U.S. dollar loses its support. Brazil’s market is also expected to benefit from a privatization and deregulation under the Jair Bolsonaro administration.

“It was the second day of withdrawals for the EWZ, as the fund is known, signaling an adjustment after its first gain for the month of May — traditionally bad for emerging markets — since 2009,” according to Bloomberg.

Investors Pull Away As Pension Reform Plan Slows

Much of the optimism surrounding EWZ and Brazilian stocks earlier this was attributable to Bolsonaro’s plan to reform Brazil’s pension system. The country’s pension system is in dire need of reform, including potential increases to retirement ages. Many Brazilians are retired by their mid-50s.

Bolsonaro has promised wide-ranging reforms aimed at stomping out corruption in Latin America’s largest economy. His ability to make good on the promised reforms is seen as pivotal to the fortunes of Brazilian assets in 2019. Brazil’s economy is expected to post GDP growth of just over 2% this year and 2.7% in 2020.

However, the pension effort has been slower-moving than many investors would like and may end being watered down as it makes its way through Brazil’s congress.

“Aberdeen Asset Management Plc’s Peter Taylor said that while recent developments in the domestic scenario have been slightly positive, he needs more clarity on the pension overhaul’s approval to add to his small overweight in Brazil stocks,” reports Bloomberg.

Although EWZ has traded higher over the past month, investors have been pulling money from Brazil ETFs.

“Investors pulled $313 million from five U.S. listed ETFs dedicated to Brazilian assets over the past week, the second-largest net outflow among emerging markets. Chinese ETFs, which topped losses, suffered a $466 million net outflow in the same span,” according to Bloomberg.

For more information on the Brazilian markets, visit our Brazil category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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