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Struggles Continue For Brazil ETFs

November 21, 2012 4:04 pm
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Forgive the pun, but ETFs tracking Brazil are turning out to be turkeys. At least in recent days. The struggles for ETFs tracking Latin America’s largest economy continued on Wednesday as the Bovespa, Brazil’s benchmark index, slid half a percent.

Those declines were in part spurred by Centrais Eletricas Brasileiras SA. Latin America’s largest power generator fell to a 17-year low in Wednesday’s session, according to Bloomberg.

Centrais Eletricas is not an integral component of the iShares MSCI Brazil Index Fund (NYSE: EWZ), the largest Brazil ETF. However, EWZ was off 1.1 percent in late trading and has faltered 5.6 percent in the past month. Centrais Eletricas accounts for less than 0.3 percent of EWZ’s weight.

EWZ’s recent declines have been hastened by bearish comments on Brazil by noted short-seller Jim Chanos earlier this week. Speaking at the Ira Sohn Conference in London, Chanos called Petrobras (NYSE: PBR) and Vale (NYSE: VALE) two of his favorite shorts.

Shares of Petrobras, Brazil’s state-run oil producer, have plunged 5.7 percent in the past five trading days. Vale is off 1.4 percent over the same time. Various securities issued by the two companies combine for about 26 percent of EWZ’s weight.

The decline in shares of Centrais Eletricas is having an adverse impact on another Brazil ETF and it is easy to see why. The EGShares Brazil Infrastructure ETF (NYSE: BRXX) is off nearly 1.1 percent in late trading. Centrais Electricas accounts for less than three percent of BRXX’s weight and the stock is not even a top-10 holding in that ETF. However, BRXX devotes almost 34 percent of its weight to utilities stocks.

BRXX has plunged 5.4 percent since November 8 when Benzinga reported the ETF could be vulnerable to downside amid speculation Brazil would not be able to meet the infrastructure demands needed to adequately host the 2014 World Cup and 2016 Summer Olympics.

BRXX is now trading just 7.4 percent above its 52-week low and a move below the psychologically important $20 area could spark a return the 52-week low. As for EWZ, that ETF is continuing a dangerous flirtation with the $50 area. The the $49-$50 area has previously acted as support and a buying opportunity for EWZ bulls, but the more the fund tests that price range, the better the chances eager short-sellers will be able to eventually send the ETF tumbling.

For more on Brazil, click here.

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