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Can Brazilian stocks rebound in 4Q2018?

Sep 27, 2018

  • iShares MSCI Brazil ETF (EWZ) is the emerging markets ETF that tracks Brazilian stocks and has generated YTD returns of –18.48%.  
  • EWZ’s RSI is fairly neutral, indicating the Brazilian emerging markets ETF is neither overbought or oversold. EWZ rallied this summer before falling lower in early August when its RSI neared overbought levels. 
  • The top ten holdings of EWZ represent ~56.5% of the total fund's NAV with the median market capitalization ~USD$20.9b
  • The average dividend yield of EWZ is ~3.49% with an average NTM P/E of ~13.27x
  • EWZ prices moves are correlated with growth in real GDP. As can be seen below, EWZ traded at 5-year lows as Brazil generated its three worst quarters of GDP growth (3Q2015, 4Q2015, and 1Q2016). This reflects the fact that holdings of EWZ skew to mega-caps in Brazil.
  • Brazil’s GDP growth steadily climbed beginning in 1Q2016 through 4Q2017 and EWZ’s price rallied over the same period; as Brazil’s GDP growth trailed off in 1Q2018 and 2Q2018, EWZ began to downtrend 
  • Investors interested in purchasing Brazilian stocks should keep a close eye on Brazil’s 3Q2018 GDP growth



Brazil - Real GDP Growth 2013-2018

Source: Bloomberg