iShares MSCI Brazil Index Fund (EWZ) Plunges as Brazilian Stocks Fall

Joel Anderson  |

The iShares MSCI Brazil Index Fund ($EWZ) was off almost 1.5 percent in early trading as Brazilian stocks plunged on Tuesday. The ETF gapped up 0.5 percent at the open but quickly lost ground, slipping further as the day went on. The move was more subdued than the nearly 2.5 percent drop experienced by the Ibovespa Brazil Sao Paolo Stock Exchange. This comes after a four-day run from last Wednesday to Monday that saw the iShares MSCI Brazil gain 6.34 percent and the Ibovespa gain 4.8 percent reach a two-week high.

Profit-Taking Causes Dip

The primary culprit for Tuesdays flagging Brazilian stocks appear to be simple profit taking after the recent run of luck. The continuation of American stimulus efforts and optimism about Chinese economic reforms had combined to push stock higher in the previous three days, but investors were clearly looking to sell Tuesday and quit when they were ahead.

"The market advanced a lot on those themes, but there is still very little in the way of concrete developments, and we are now seeing markets settle," said Saga Capital economist Gustavo Mendonca.

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Among the day’s big losers was the state-run oil company Petrobras ($PBR), off almost 1.5 percent, metals and mining company Vale S.A. (VALE) , down about 1.75 percent, Itau Unibanco Holdings (ITUB) , down over 2.75 percent, and Banco Bradesco (BBDO) , down over 2.75 percent.

Weaker Outlook for Emerging Markets

Brazil stocks may also have been affected by dreary outlooks for emerging markets coming from some corners. The Organization for Economic Cooperation and Development (OECD) “revised down significantly” global growth forecasts for 2013 and 2014, and among the hardest hit was Brazil. The OECD’s projections now have Brazil’s economy expanding just 2.2 percent in 2014.

This comes a day after Citigroup (C) analysts revealed less than positive perspective on eight major Brazilian consumer stocks.

“Slower demand presents top-line risks for Brazilian retailers exposed to the mid- and lower-income segments. Moreover, inflation could push operating expenses up while rising interest rates pressure financial costs for leveraged companies,” said Citigroup analysts in a note.

The MSCI Brazil ETF has about 19 percent of its weight tied up in consumer stocks.

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