CHICAGO, Dec. 9, 2013 /PRNewswire/ -- Securities in this article include: iShares MSCI Brazil Index Fund (EWZ– Free Report), Market Vectors Brazil Small Cap ETF (BRF – Free Report), and the EG Shares Brazil Infrastructure ETF (BRXX – Free Report). Eric Dutram looks at the Brazil ETF market and how these funds might hold up in the months ahead following more poor news out of the country.
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Brazil ETFs in Focus on GDP Contraction: Any Hope Going Forward? written by Eric Dutram of Zacks Investment Research:
A year to forget for Brazil isn't over quite yet, as more bad news has hit the huge South American nation. This time, the weakness comes from the latest GDP report from the country, which was quite poor.
In the report, Brazil revealed that its GDP actually contracted for the most recent quarter (compared to Q2), posting a decline of -0.5%. This was lower than the -0.3% slump predicted by a Bloomberg survey of 38 economists, according to the Financial Times.
The key areas of weakness in the country came from a big slump in the agricultural output, which tumbled by 3.5% (q/q), while industry and services were a bit better, showing tiny gains for the time period. Troublingly for the nation though, investment also fell, by 2.2%, suggesting that some are abandoning the country as a destination for capital (also see Brazil ETFs Crushed by Downgrade, Currency Woes).
Given this struggling growth, many might think that a rate cut is in order for the nation. However, with a recent hike to 10% and inflation at nearly 6%, this isn't really an option, suggesting that the central bank and government officials are kind of stuck for the time being, and that more trouble might be ahead for Brazil.
ETF Impact
As you can imagine, this news has led to some poor trading for the many ETFs tracking Brazil. The gold standard in this corner of the ETF world continues to be the iShares MSCI Brazil Index Fund (EWZ) and this product tumbled after the report on GDP was issued.
This also continues the terrible trend for EWZ for pretty much all of 2013, as the product has lost more than 20% in the time frame. Much of these losses came when the taper discussion first came to the forefront in the U.S., but the recent rate hike and growth concerns are threatening to send the fund into another run lower.
However, it is also worth noting that the slide in shares has hit other aspects of the Brazilian ETF market as of late too, suggesting that other types of securities are by no means immune to what has been happening in the country (see all the Latin America Equity ETFs here).
For the original article, please visit Zacks.com at: http://www.zacks.com/stock/news/116062/brazil-etfs-in-focus-on-gdp-contraction-any-hope-for-2014
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