Last year was not a bad time to own three of the four major
tracking the BRIC nations.
That is to say investors would have down quite well with RIC
instead of BRIC as the Market Vectors Russia ETF (NYSE:
), WisdomTree India Earnings ETF (NYSE:
) and the iShares FTSE China 25 Index Fund (NYSE:
) all performed quite well in 2012.
The laggard was the iShares MSCI Brazil Index Fund (NYSE:
). Over longer time frames, EWZ has proven to be a thorn in
investors' sides as well. Holding EWZ for the past 24 and 36
months means having held the second-worst performer of the four
A big reason for EWZ's woes in recent years has been
problematic Petrobras (NYSE:
a well-documented subject that investors in
have become all too familiar with. To quickly recap, this has
been the situation with EWZ and Petrobras, Brazil's state-run oil
As a market capitalization-weighted ETF, the largest Brazilian
stocks by that metric will account for the largest percentage of
EWZ's lineup. That has often a large, if not concerning weight to
Petrobras. Concerning because over the past several years,
Petrobras has been the worst-performing global oil stock listed
on a major U.S. exchange.
Indeed, from March 10, 2008 through March 4, 2013, shares of
Petrobras fell more than 69 percent. A far cry from the
performances of Exxon Mobil (NYSE:
), Chevron (NYSE:
), Royal Dutch Shell (NYSE: RDS-A) or Total (NYSE:
) over the same time. This factoid really paints the picture of
how much of a dud Petrobras has been over that time: Even BP
), which had the worst oil spill in U.S. history to contend with
in 2010, has performed better than Petrobras.
Fast forward to this week and things are suddenly looking for
Petrobras. EWZ is liking the headlines as well. On Wednesday,
Petrobras announced it raised diesel prices in Brazil five
percent. That follows a January increase on gas prices of 6.6
percent and diesel increase of 5.4 percent.
The news is significant because unlike its major rivals,
Petrobras has been unable to truly participate in oil's upside
because the Brazilian government, the largest Petrobras
shareholder, has kept a lid on the price increases the company
can employ as a means of taming inflation.
Said another way: Petrobras says oil and oil-related products
at below international market prices and that is one reason why
the company reported its first quarterly loss in 13 years last
according to the Financial Times
News of the diesel price increase sent shares of Petrobras
surging Wednesday. Credit Suisse liked what it saw and upgraded
Petrobras to Outperform from Neutral today, calling the diesel
price increase a "big step."
"This could be the beginning of a more benign Government
attitude, trying to restore business confidence,"
Credit Suisse said in the note
The upgrade has shares of Petrobras higher by nearly five
percent today, which makes for a five-day gain of 21 percent. The
trickle down effect to EWZ has been evident as well. EWZ, the
largest ETF tracking Brazil, currently allocates about 11.5
percent of its weight to Petrobras,
according to iShares data
. The ETF has jumped nearly five percent in the past five
Obviously, EWZ has other tales that can wag its dog, such as
) and a 27.5 percent allocation to Brazilian banks. That means
the correlation between the ETF and Petrobras is not as intimate
as some might think. For example, over the past two years,
Petrobras has been nearly two-and-a-half times as bad as EWZ in
terms of returns.
Still, EWZ's reputation for being Petrobras heavy positions
the ETF nicely to take advantage of any ongoing rebound in the
For more on EWZ, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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