After tumbling through much of the first half of 2018, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) surged nearly 13% in July, marking the first positive month since January for the largest US-listed exchange traded fund tracking Brazilian stocks.
Brazilian stocks and Brazil ETFs got a lift last month after several parties began to support center-right presidential candidate Geraldo Alckmin in the upcoming presidential election. Brazil is Latin America’s largest economy.
“There is an improvement in risk sentiment across emerging markets and Brazil is piggybacking off of that,” said Peter Donisanu, investment strategy analyst at Wells Fargo Investment Institute, reports CNBC. “Donisanu noted that recent easing of trade tensions between the U.S. and some of its key partners improved sentiment around emerging markets and Brazil.”
Leaders of Brazilian center parties forming the so-called Centrão, which forms the coalition of DEM, PP, Solidariedade, PR, Avante, PRB and PHS, stated they will support Alckmin in this year’s election in October, Folha de S.Paulo reports. The coalition would provide Alckmin with greater political reach and the best recognition through television advertisements.
If the parties officially announce the agreement, Alckmin would garner additional time to advertise on television during the presidential campaign – he would have almost 40% of the entire share in the upcoming campaign.
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Brazilian Benefits
“Most emerging markets are primarily export-based economies, meaning that increasing trade barriers directly impact their ability to grow economically. Brazil, for example, was the 24th-largest exporter in the world back in 2016. That year, Latin America’s biggest economy exported $191 billion in goods,” according to CNBC.
EWZ still has some work to do to potentially lure more bullish investors. The ETF is still sporting a year-to-date loss north of 10%, even with July’s surge, and the fund resides more than 10% below its 200-day moving average. EWZ also languishes more than 24% below its 52-week high.
Despite the difficulty in predicting the next president, there are still constructive drivers that should benefit stocks over the next few months. For instance, J.P. Morgan expects Brazil to post the best corporate earnings growth in 2018 among Latin American peers. Additionally, a number of its industries are linked to commodities, which benefit from a weaker real currency.
For more information on the Brazilian markets, visit our Brazil category.