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Brazil Growth Outlook Worsens: ETFs In Focus

Jul. 02, 2017 10:08 AM ETEWZ, FBZ, ILF
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Brazil's Finance Minister Henrique Meirelles expects a lower economic growth rate for 2017. He expects the GDP to grow 2% year over year in the fourth quarter compared with the earlier estimate of 2.7%. Therefore, the full-year average is expected to be slightly less than 2%.

Meirelles stated that the lowered outlook is because of the recent political crisis that inundated Brazil. President Michel Temer was accused of accepting bribes from meat-packing company JBS. Earlier this week, corruption charges were brought against him by the prosecutor general of the country.

Adding to the agony, lower tax revenues also led to lower growth forecast. However, Meirelles noted that there are still chances of raising taxes in the country to increase government revenue.

Consumer prices in Brazil rose 3.6% year over year in May 2017 compared with a 4.08% in the previous month. Moreover, the central bank cut its key benchmark rate for the sixth straight time in May. It was reduced by 100 basis points to 10.25%.

Let us discuss some ETFs focusing on providing exposure to Brazilian equities.

iShares MSCI Brazil Capped ETF (EWZ)

This fund is the most popular ETF providing exposure to Brazilian equities. It focuses on the most liquid companies in the large-cap segment.

It has AUM of $5.44 billion and charges a fee of 63 basis points a year. Financials, Consumer Staples and Energy are the top three sectors of this fund with 36.07%, 15.97% and 11.86% allocation, respectively (as of June 27, 2017). The top three holdings are Itau Unibanco Holding Pref SA (ITUB), Ambev SA (ABEV) and Banco Bradesco Pref SA (BBD) (BBDO) with 11.66%, 8.49% and 8.20% allocation, respectively (as of June 27, 2017). The fund has returned 2.69% year to date and 14.88% in the last one year (as of June 28, 2017).

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