Market Overview

Ides of March For Brazil ETF?

Among the exchange traded funds tracking Latin America's largest economy, the iShares MSCI Brazil Capped Index Fund (NYSE: EWZ) reigns supreme as the biggest with nearly $7.9 billion in assets under management and the most heavily traded with average daily volume of almost 11.7 million shares.

Recently, EWZ has also been an ETF that cannot seem to get out of its own way. Rather, myriad negative headlines pertaining to some of EWZ's marquee holdings are the real obstacles to the fund's ability to snap out of its funk.

Petrobras (NYSE: PBR), Brazil's state-run oil giant and nearly 12 percent of EWZ's weight, is a familiar drag on EWZ. However, earlier this month, there were signs Petrobras may be poised to finally start helping EWZ instead of hindering it.

In early March, shares of Petrobras announced it raised diesel prices in Brazil five percent. That followed a January increase on gas prices of 6.6 percent and diesel increase of 5.4 percent.

Fast-forward to this week and Petrobras was out telling investors it plans to keep its already heavily criticized five-year $236.5 billion spending plan in place.

While another dilutive stock sale – the company's $70 billion 2010 share sale is the biggest stock offer ever by a U.S.-listed company – does not appear likely, Petrobras does plan to sell $12 billion in debt annually to finance its exploration ambitions.

Additionally, the company lowered its asset sales target to $9.9 billion by 2017 from $15 billion, Reuters reported.

Shares of Petrobras fell 3.7 this week, but the stock was far from the only offender in EWZ. Vale (NYSE: VALE), the world's largest iron ore producer and 10 percent of EWZ's weight, is off more than five percent over the past month.

Indeed, the stock finished higher this week, but the company is involved in an ongoing rift with the Argentine government.

The government there is seeking to block Vale from dismantling its Rio Colorado potash mine, Dow Jones reported.

Making matters worse for Vale and its rivals, Morgan Stanley said earlier this month that spot iron ore prices probably peaked in February at $159 a metric ton and could average $133 per metric ton for the rest of this year.

Then on Wednesday Moody's Investors Service pared its ratings on the National Development Bank, or BNDES, and the Caixa Economica Federal, two state-run Brazilian banks.

Those names are not EWZ constituents, but it should be noted that in 2012, Brazilian banks saw their worst profit margins in years due to lower interest rates and prodding from the government to pare fees. Financial services stocks account for 27.4 percent of EWZ's weight.

Overall, EWZ lost 2.3 percent just this week and is now clinging to its 200-day moving average by mere pennies. Without the benefit of some near-term upside, EWZ could test support at $52 and if the ETF does not hold there, the next stopping point is likely around $48.

For more on Brazil, click here.

Posted-In: Long Ideas News Short Ideas Downgrades Emerging Market ETFs Futures Technicals Commodities Best of Benzinga

 

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