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EWZ Is A Easy Goal For Investors In This Year

May 01, 2020 1:13 PM ETiShares MSCI Brazil ETF (EWZ)22 Comments
James Cherry profile picture
James Cherry


  • My projection for EWZ has an estimated alpha of almost 18%.
  • The market was overloaded with more news then it could process at one time, which why the stock has fallen far below my target price.
  • I do not feel that EWZ is a good long-term investment but can make alpha for its investors in the short-term.

The decision to invest in emerging markets should never be a decision taken without a decent amount of research. When you invest in a foreign country, even via ETFs, you are subject to both market risk and foreign exchange risk. The worse thing is that most of the time, these two risks are correlated with each other.

I believe that EWZ and any other ETF that track the MSCI Brazil 25/50 index are undervalued and still offer investors some alpha in the short-term. I feel that this occurred because of the compounding effect of the coronavirus and political issues that occurred at the same time. Do not get me wrong. I am not saying that investing in Brazil as a long-term strategy is a good idea. I am saying that there is some short-term alpha available due to the market overreacting after being bombarded with bad news.

FX Rate:

The way that I forecast currency is a little untraditional. Still, it had served me well for almost eight years when I was responsible for hedging the USD for a Brazilian company. I use a mix of technical analysis and the purchasing power parity to estimate exchange rates.

According to the Big Max Index, the current fair value of the Brazilian Real is 3.51. I use this value and a multiple that I will explain it soon, to find my resistance point. Up until last week, this multiple has served me well for the past five years. Then a mix of coronavirus terrible news and an essential Brazilian minister leaving, plus the possibility of another going soon, broke through my resistance.

After the impeachment of President Dilma, I used the high of the BRL during the period and divided it by the fair value according to PPP. That multiple was 1.53x. Every time the

This article was written by

James Cherry profile picture
I am the Head of Content Strategy at Sproutfi, a fintech located in Brazil that is democratizing investing in Latin America.  I have over 13 years of experience in the Food Industry, ranging from plant engineer to Corporate Development and FP&A.You, the reader, will notice that most of my articles were written about investment ideas I was researching for my investments.My alma mater is the University of Arkansas, where I graduated with a BA and an MSc in Operations Management. I served in the United States Army for six years and was deployed several times, including in Iraq. After completing my military obligation, I moved to Brazil to begin my career in Finance. I received an MBA in International Business from FIA/FEA at the University of Sao Paulo. I have passed the Level 1 and Level 2 CFA Exams. My hobbies are: playing the guitar and drums, longboarding, mountain biking, scuba diving, reading non-fiction books, and giving financial advice to low-income households.Any article in Seeking Alpha reflects my opinion and not the opinion of Sproutfi.

Analyst’s Disclosure: I am/we are long EWZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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