The Brazilian economy finally seems to have turned the corner.
This BRIC major and the biggest economy in South America recently
got a boost from the Fed's 'taper hold' decision along with
several other emerging markets.
Double pressure from slower growth and heightened inflation was
crippling the country's core. To add to its woes, Brazil
witnessed weakness in its currency - real - that depreciated more
than 17% against the US dollar earlier this year.
However, a deluge of initiatives and somewhat favorable economic
data again brought this beaten but promising region into the
light in September. Primarily, Fed's 'taper hold' decision did
the trick. With this decision, investors again began pouring in
cheap dollar in faster growing emerging markets thus providing
some respite at the current level.
Of late, some solid China data also helped Brazil to score better
on some economic parameters as China is Brazil's largest trading
The Comprehensive Guide to Brazil ETFs
Short-Term Ease on Current Account Deficit
Fears over swelling current account deficit in the region appear
to have dispersed somewhat for the time being. Current account
deficit narrowed to $5.505 billion in August from $9.018 billion
in July. Market is
with the anticipation of Brazil entering again into the bond
markets with renewed hopes for higher-yielding emerging-market
bonds following 'taper hold'. This coupled with the improvement
in balance of trade gave a short-term cushion to Brazil's current
The Real Gaining Strength
On August 22, Brazilian central bank
in the currency market to provide $60 billion worth of cash and
insurance by the year end to spark the real's prospect and
augment liquidity. The measure is intended to serve triple
targets of taming inflation, arresting the slide in real and
setting growth in motion. This currency intervention is likely to
widen Brazil's $
45 billion strategy
adopted earlier in 2013. We believe the strategy has shown
its true colors as real
gained the most in two years
in September. Temporary fix in debt-ceiling in the US should also
provide some scope for improvement for the real in the near term.
The positive trend can further be validated with the
WisdomTree Brazilian Real Fund
) - the only fund that looks to deliver returns to the money
market rates in Brazil and appreciation of the Brazilian real
relative to USD - adding 5.5% in the last three months (as of
October 22, 2013).
Inflation, although quite high on a nominal basis, began to calm
down since August on a year-over-year basis. In September, the
, down 23 basis points from the year-ago period.
, Brazilian inflation is expected to touch the year's low in mid
October. The government targets 4.5% for this year, plus or minus
2 percentage points. Actually, a set of interest hikes to tame
inflation seems to help the country's inflation scenario.
All these above-mentioned factors prepared the Brazilian ETFs for
a decent run in the recent times. The ultra popular fund in this
segment, the iShares MSCI Brazil Capped ETF (EWZ), gained 18.05%
in the last three-month period (as of October 22, 2013) (read:
Will Brazil ETFs Rebound in 2013?
Some other names in the space which emerged from their lows and
returned positively in the last three months include
Market Vectors Brazil Small-Cap ETF
iShares MSCI Brazil Small Cap Index Fund
Global X Brazil Consumer ETF
EGShares Brazil Infrastructure
). Notably, two small-cap funds BRF and EWZS returned 9.34% and
10.98% while BRAQ and BRXX added 12.92% and 12.55%, respectively.
Can This Upturn Sustain?
It's just the beginning of a long journey. A lot still needs to
be done to find long-term solutions for all the economic issues.
Especially, on the inflation front the condition is still not
convincing as the recent
suspects inflation to flare up again in the months ahead.
Inflation is expected to finish 2013 at
, as per a survey by Brazilian economists. The rate is also
expected to stay stubborn at
At present, Brazil's benchmark interest rate is pegged at 9.50%,
staying at the peak
among the world's largest economies
, after five successive raises since April. Finding no other way
to contain the potential rise in inflation, analysts expect
monetary policy committee to go for another 50 bps hike in their
November meeting which is really not a healthy sign for the
Despite being part of emerging economies, Brazil's growth rate is
much slower than many of its counterparts. In fact, with growth
projections falling below 3% for 2013 GDP, the country is also
lagging many usually slow growing developed nations. (read:
Short Brazil with These Inverse ETFs
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GLBL-X BRZL CON (BRAQ): ETF Research Reports
EMERG-GS BRAZIL (BRXX): ETF Research Reports
WISDMTR-BRZ RL (BZF): ETF Research Reports
ISHARS-BRAZIL (EWZ): ETF Research Reports
ISHARS-MS BR SC (EWZS): ETF Research Reports
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