EWZS ETF

Investing in Brazil has been challenging due to US tech stock dominance, but long-term potential exists. Consider investing in small-cap Brazilian stocks like EWZS to capture domestic growth and economic activity. EWZS offers exposure to various industries in Brazil, with a focus on industrials and consumer discretionary sectors.

Wall Street was subdued last week.

The Brazilian stock market and real are the worst performers globally in 2024. Despite poor performance, Brazil has controlled inflation, an independent central bank, and investment opportunities. With an attractive ROE and a very cheap P/E, the ETF looks like a great opportunity.

The iShares MSCI Brazil Small-Cap ETF offers exposure to a diverse group of Brazilian companies well-positioned for long-term growth. Weakness from China as Brazil's major trading partner is hitting sentiment across emerging markets. We highlight current trends in the Brazilian economy and expect volatility to continue.

Brazilian small-cap stocks are impacted by long-term interest rates, and the expectation of slower rate cuts has tempered optimism in the second half of 2023. Rising inflation and fiscal uncertainties have led to a weakening Brazilian real, affecting commodities and agribusiness. While lower interest rates in the long term could favor the EWZS, the short-term outlook is cautious, with a shift to a neutral stance due to micro and macroeconomic challenges.

The iShares MSCI Brazil Small-Cap ETF offers exposure to small-capitalization Brazilian equities, buying weighted ADRs to replicate the index results. However, exchange rate variations can affect the fund's value. Despite political and macroeconomic risks, Brazilian small-cap stocks are seen as undervalued and could yield returns as the base interest rate decreases. The EWZS has recovered almost 40% year-to-date after a significant devaluation. Caution is advised due to high household debt levels in Brazil, uncertainty around tax reform, and the potential for a slower interest rate reduction.

Emerging Markets, in general, and Brazil, in particular, are trading at extremely low P/E multiples in the context of the last two decades. Brazilian stocks are cheap for many reasons; but this may not warrant such a large discount. It may lead to a bullish run like in the early 2000s.