The Brazil ETF Is Still The Bearer Of Bad News

Thirteen exchange-traded funds hit new 52-week lows Monday, a fate narrowly avoided by the iShares MSCI Brazil Index (ETF) EWZ. However, the largest ETF tracking Latin America's largest economy did slide 2.5 percent to a closing print less than 2 percent of the fund's recently hit 52-week low.

Over the past month, EWZ is off 18.8 percent, making it one of the worst performing single-country emerging markets ETFs during that time. EWZ has lagged the MSCI Emerging Markets Index by nearly 700 basis points over the past 30 days and calling for a reversal of that trend is becoming harder. On an annual basis, EWZ has not outperformed the benchmark emerging markets equity gauge since 2009.

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Brazil's 2015 Downgrade

Other Issues For EWZ

“Traders have pushed down the value of Brazilian assets as President Dilma Rousseff struggles to shore up the nation’s budget amid prospects for the deepest recession in a century and a widening corruption scandal. The government’s deteriorating finances helped trigger two rating downgrades to junk last year, while business and consumer confidence levels are at their lowest levels on record,” according to Bloomberg.

In September, Standard & Poor's downgraded Brazil's sovereign credit rating to BB+ from BBB-, becoming the first of the major ratings agencies to slap a junk rating on Latin America's largest economy.

S&P may not be done downgrading Brazilian debt. All of those factors and more have contributed to one of the deepest recessions in Brazil's history and EWZ's struggles.

Another problem for EWZ is weakness in Brazilian bank stocks, which is particularly problematic when considering the sector's issues against the backdrop of some of the developing world's highest interest rates. EWZ's financial services weight is about 33 percent, or more than 1,200 basis points larger than the ETF's second-largest sector allocation, consumer staples.

Then there is the commodities crash, one that has made Brazil's economy and EWZ increasingly vulnerable. The ETF devotes 18 percent of its combined weight to the materials and energy sectors, including such downtrodden names as Petroleo Brasileiro SA Petrobras (ADR) PBR and iron ore giant Vale SA (ADR) VALE.

Petrobras, Brazil's state-controlled oil company, has lost nearly 60 percent of its value over the past year, and following Monday's close at $2.92, one of the company's New York-listed shares would not even buy an investor a latte at Starbucks. However, those numbers look good in comparison to Vale, which has seen its American depositary receipts plunge 71.2 percent over the past 12 months to a Monday close of $2.15.

Through January 22, investors had pulled $68 million from EWZ this month, more than the outflows from the other five major single-country ETFs tracking Latin American economies combined.