At a time when the iShares MSCI Brazil Capped Index Fund
) and other
tracking Latin America's largest economy can handle no more bad
news comes this.
Citigroup has slashed its year-end target for Brazil's
benchmark Bovespa index to 65,000 from 70,000. The bank cited
slack economic growth and rising inflation,
according to Bloomberg
The Bovespa, which is down
more than 10 percent year-to-date and nearly 15 percent in the
, currently trades around 55,560 so it can be said the Citi
forecast is still somewhat bullish.
Indeed, the two largest Brazil-specific ETFs have outperformed
the Bovespa this year, though that is not saying much. EWZ, the
largest by assets of Brazil ETFs, is down 4.6 percent
year-to-date. The Market Vectors Brazil Small-Cap ETF (NYSE:
) is lower by seven percent.
EWZ's performance is also a tad better than the 5.5 percent
loss posted by the Vanguard FTSE Emerging Markets ETF (NYSE:
Still, it is fair to say Brazil ETFs have had
ample headwinds with which to contend this
EWZ is home to 82 stocks, but two loom larger than all others:
) and Vale (NYSE:
Shares of Petrobras, Brazil's state-run oil giant, are off
17.2 percent this year, but rivals Exxon Mobil (NYSE:
) and Chevron (NYSE:
) have both traded noticeably higher. Then there is Vale, the
world's largest iron ore producer.
Wilting under the clouds of slack global materials demand and
faltering iron ore prices, Vale's U.S. shares are lower by more
than 21 percent this year. Petrobras and Vale combine for 21.8
percent of EWZ's weight.
Barring a significant turnaround in those stocks, Citi's
forecast of 65,000 for the Bovespa by year-end seems ambitious.
Round the Bovespa's current level up to 55,600 and it would still
take a gain of nearly 17 percent to reach 65,000.
With the materials sector
showing obvious signs of weakness
, forecasting a significant rally for EWZ becomes tricky as that
ETF allocates 16.7 percent of its weight to materials names.
Factoring domestic inflation into the equation means an even
murkier outlook for BRF and EWZ in terms of potential upside. EWZ
allocates about 20 percent of its weight consumer-oriented
shares. Alone, discretionary names account for 34 percent of
according to Van Eck data
Brazil ETF bulls should watch for two things: EWZ's ability to
hold support around $52.50 and whether the ProShares UltraShort
MSCI Brazil (NYSE:
) moves above $70. In the case of BZQ, the move above $70 could
bring new buyers into the thinly-traded, double-leveraged bearish
For more on ETFs, click
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