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Traders Embrace Brazilian Uncertainty With This ETF

July 24, 2018 9:39 am
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Emerging markets stocks are slumping this year and, at least until recently, Brazilian equities have been among the worst offenders.

The MSCI Brazil 25/50 Index is down nearly 12 percent year-to-date and that is with the benefit of 9.56 percent surge over the past month.

What Happened

Brazilian stocks are among Latin America's most volatile. In fact, the MSCI Brazil 25/50 Index is significantly more volatile than the MSCI Emerging Markets Index. That volatility is a gift and a burden for the Direxion Daily MSCI Brazil Bull 3X Shares (NYSE:BRZU). BRZU looks to deliver triple the daily returns of the MSCI Brazil 25/50 Index.

After surging 9.79 percent on Friday on volume that was well above average, BRZU is up more than 46 percent in July, making it the best-performing bullish leveraged exchange traded fund (ETF) in Direxion's stable on a month-to-date basis.

Why It's Important

BRZU is rallying against a backdrop of political uncertainty, a familiar refrain in Brazil. Latin America's largest economy is scheduled to hold national elections in October.

“The Brazilian presidential election will take place in less than three months, but its outcome remains highly uncertain,” said Markit. “The latest opinion survey by pollsters Ibope and Datafolha, released in late June, show outsiders leading the race. The current voter preference is for extreme right-wing Federal Deputy Jair Bolsonaro of the Social Liberal Party (PSL, Partido Social Liberal) with some 17-19% of the votes. He is technically level with center-left former environment minister Marina Silva of Rede Sustainability (REDE, Rede Sustentabilidade), who has 13 -15% support. Another outsider from the center-left, former Finance Minister Ciro Gomes, of the Democratic Labor Party (PDT, Partido Democrático Trabalhista), ranks third with 8-10%.”

What's Next

BRZU is a leveraged ETF and a volatile one at that, which is to say this fund should not be held from now through Brazil's election day. Rather, traders should continue treating BRZU as a short-term play for now and remember to engage the fund in October around the Brazilian election.

Data suggest traders have recently been embracing BRZU. For the 30-day period ended July 19th, BRZU averaged daily inflows of $2.07 million, according to issuer data. BRZU was also the most volatile leveraged bullish Direxion ETF over that period.

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