Is The Selling Overdone In The Inverse Brazil ETF?
For some investors, taking a bearish view on Brazil is a difficult thing to do. After all, the iShares MSCI Brazil Index (NYSE: EWZ) and the Market Vectors Brazil Small-Cap ETF (NYSE: BRF) both delivered returns of well over 100% in 2009.
That said, 2010 has been less than kind to Brazilian equities and their corresponding ETFs. News of China's moves to curb bank lending and cool economic growth have caused the market to overlook the bullish merits of Brazil's economy exclusive of its trading relationship with China.
That means investors may want to look at a Brazil insurance policy and that comes in the form of the UltraShort MSCI Brazil ProShares ETF (NYSE: BZQ). BZQ is the bearish cousin of EWZ, but is surprisingly illiquid compared to EWZ. EWZ trades over 17 million shares per day while BZQ doesn't even trade 78,000.
BZQ had a nice move starting in the middle of January as EWZ and BRF were pummeled, but BZQ has been rocked in recent weeks and the RSI and Stochastics are showing signs that BZQ may be oversold.
If you hold EWZ as a long-term holding then a short-term trade in BZQ might be ideal in the essence of buffering your portfolio against losses in EWZ. At the end of the day breaking even by being long EWZ and long BZQ is better than taking losses associated with near-term volatility in the emerging markets.
