When it comes to Latin America
, a familiar situation still exists. That being regardless of
what the region's major bourses are doing, moving up, down or
sideways, Brazil commands most of the headlines. At the ETF
level, that means the iShares MSCI Brazil Capped Index Fund
) is the Latin America fund investors, broadly speaking, are most
EWZ has its own litany
of well-documented woes
, but it is far from being the only major Latin America that is
being taken to task.
Another victim of declining commodities/rising interest
rates/strong U.S. dollar trade is the iShares MSCI Chile Capped
Investable Market Index Fund (NYSE:
). While the ETF has since modestly bounced back, it touched a
new 52-week low at $53.77 earlier Tuesday. If ECH closes below
$54.55 today, it will be the first time it has committed that
offense since the fourth quarter of 2011. ECH has not notched
consecutive closes in the low $50s since October 2011.
A big of the Chile ETF's problem is the country's status as
the world's largest copper producer, which in turns gives one of
Latin America's more advanced economies significant leverage to
China's commodities demand, or lack thereof. That clearly has
been bad news lately for ECH,
although the ETF is not particularly heavy on
. In fact, utilities, financials and consumer staples all receive
larger weights in ECH than do materials names.
Making ECH all the more vulnerable to further downside is the
ETF's 17.3 percent allocation to financials, a group that
includes Banco de Chile (NYSE:
) and CorpBanca (NYSE:
Combined, those stocks represent just 6.5 percent of the ETF's
weight, but they are showing ominous signals. Banco de Chile
recently committed the offense known as
in the world of technical analysis.
That is when a shorter term moving average, such as the 50-day
moving average, crosses below a longer term moving average, such
as the 200-day line.
Trade With Pete noted
, CorpBanca has committed the same offense. Then there is the
bearish head and shoulders formation in Banco Santander Chile
), 4.5 percent of ECH's weight.
ECH itself is close
to a death cross
. The Chile ETF is down 13.3 percent in the past month, a
performance that is slightly worse than that of EWZ, the
comparable Brazil ETF. Since May 1, investors have pulled nearly
$30 million from ECH.
Picking a bottom in ECH could prove tricky given the ETF's
volatile nature and track record of previous large declines in
condensed periods of time. ECH is only modestly less volatile
than EWZ with a three-year standard deviation of 24.9 percent
compared to 26.5 percent for EWZ,
according to iShares data
Additionally, when ECH experiences multi-week declines, those
are often followed by more declines. For example, the ETF plunged
23.5 percent over five weeks from July 1 to August 8, 2011. That
was followed by a bounce then a 22 percent decline during
September of that year. In fact, ECH's current tailspin is its
third four to six-week double-digit decline since the fourth
quarter of 2011.
For more on Latin America ETFs, click
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