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Leveraged Brazil ETF Takes Off To Start 2019

January 3, 2019 11:05 am
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Leveraged Brazil ETF Takes Off To Start 2019

Newly inaugurated Brazilian President Jair Bolsonaro is often framed as a controversial figure by scores of traditional media outlets. “Far right,” “firebrand” and “Trump of the Tropics” are among the monikers various media organizations use to describe Bolsonaro.

Financial markets are looking past the controversy, a theme investors may want to focus on over Bolsonaro's divisive rhetoric.

What Happened

In the fourth quarter, a period including Bolsonaro's ascent to front-runner and his victory in Brazil's general election on Oct. 29, 2018, the MSCI Brazil 25/50 Index surged 15 percent. Over the same period, the MSCI Emerging Markets Index lost 7.60 percent.

While Bolsonaro's authoritarian traits have the Brazilian media throwing up red flags, markets are seeing things differently. The MSCI Brazil 25/50 Index surged Wednesday as did the Direxion Daily MSCI Brazil Bull 3X Shares (NYSE:BRZU). BRZU is designed to deliver triple the daily returns of the MSCI Brazil 25/50 Index.

Why It's Important

At this writing near the January 2 close, BRZU is up more than 19 percent on volume that far exceeds the daily average.

However, keep in mind that Brazilian equities are more volatile than the MSCI Emerging Markets Index and there occasions when BRZU ranks among Direxion's most volatile bullish leveraged funds. These factors serve as reminders to traders that BRZU is a short-term trading vehicle, not a long-term investment. Add to that, a case can be made that much of markets' ebullience toward Bolsonaro is already baked into Brazilian stocks.

Conversely, if Bolsonaro can show some centrist colors and make good on promises to damp corruption in Brazil, stocks there could rally further, since it's under widespread government malfeasance that Latin America's largest economy has languished. From 2012 through 2017, the MSCI Brazil 25/50 Index only outperformed the MSCI Emerging Markets on an annual basis once (2016).

What's Next

Data indicate traders have recently been displaying enthusiasm for BRZU. For the 10-day period ended Dec. 31, 2018, BRZU saw inflows of $12.29 million, a total surpassed by just five other Direxion ETFs, according to issuer data.

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