EWZ: 3 Reasons To Take Advantage Of Cheap Brazilian Stocks
Brazilian assets have come under pressure amid growing fiscal concerns and rising US yields, driving the iShares MSCI Brazil ETF further into undervalued territory. The EWZ ETF now yields 8.8%, meaning capital gains are not needed to produce outsized returns. High exposure to undervalued commodity prices, overblown macro concerns, and improved corporate discipline offer reasons to take advantage of the EWZ's weakness.
Brazil Has a Great Economy but Awful Markets. Here's Why.
Investors are looking past the healthy present to a recurrence of Brazil's chronic economic disease: excessive government spending that spurs runaway inflation and crowds out growth.
EWZ: A Cautionary Tale Of Fiscal Struggles And Currency Chaos
Brazil faces rising inflation and a record fiscal deficit, causing iShares MSCI Brazil ETF to drop 19% in 2024 while the S&P 500 gained 20%. The Brazilian real has deeply weakened against the U.S. dollar, driven by fiscal concerns and rising interest rates. EWZ's P/E ratio has risen to 8.5x, which remains the lowest among most emerging countries.
EWZ: Not Ideal, But Don't Write It Off Either
Brazilian equities have underperformed both global stocks and their EM counterparts quite significantly this year. EWZ is the largest Brazilian-themed ETF around, but the next largest offering - FLBR - is gaining interest and with good reason. Trading volumes in the Brazilian equity markets have come off quite significantly as the Central Bank's ongoing rate stance has made fixed income more attractive.
EWZ: Opportunities Outweigh The Monetary Policy Uncertainty
Brazilian equities have gained 15.16% post-Black Monday, driven by the outperformance of financial stocks, positive external news, and mixed internal news. The largest tracking ETF is at its lowest five-year AUM, and higher risk appetites with a soft landing could attract foreign inflows at a rapid pace due to cheap valuations. Inflation deviating from the target, along with the appointment of a new central bank president, raises uncertainty. Yet, the opportunity outweighs the cons.
EWZ: Why It Could Be A Good Time To Invest In Brazil
To invest in the Brazilian stock market, I chose the EWZ ETF because it is more liquid, even though it has fewer holdings and is more expensive than its peers. The economic prospects for Brazil are positive, and the country's stock market performance significantly lags behind its GDP growth. The lowering of Fed rates can stimulate the growth of commodity prices and emerging market stocks, including Brazil.
EWZ: Worth The Risk Despite Lula Intervention
The EWZ tracks the performance of the MSCI Brazil index, which is dominated by commodity stocks and characterised by a high dividend yield and cheap valuations. Sentiment towards Brazilian stocks has been undermined by the government's decision to replace the CEO of oil giant Petrobras, raising fears of further government intervention into the corporate sector. The ETF is extremely undervalued relative to its own history and EM peers, and its high FCF and dividend yield suggest it should outperform even if the discount remains intact.
