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EWZ: Brazilian Equities Are Undervalued

Jan. 05, 2022 6:41 AM ETiShares MSCI Brazil ETF (EWZ)11 Comments
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  • Brazilian equities might be undervalued; in any case, high returns are on offer.
  • A key risk is the USD/BRL exchange rate, which is likely to worsen (i.e., appreciate), given Brazil's poor current account.
  • Nevertheless, provided Brazilian corporates are able to deliver real earnings growth as projected, EWZ should be able to perform better into the future.
  • Even a mild, unexciting scenario, EWZ's returns could firmly exceed 15%, with returns of over 20% per annum also possible if/as inflationary pressures begin to subside over the next few years.

sunset with buildings in the western sector of Goiania, Goiás, Brazil,

Erich Sacco/iStock via Getty Images

iShares MSCI Brazil Capped ETF (NYSEARCA:NYSEARCA:EWZ) is an exchange-traded fund that is designed to track its benchmark index, the MSCI Brazil 25/50 Index. EWZ offers exposure to mid- and large-sized Brazilian stocks.

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Providing commentary and analysis, principally focused on global macro, foreign exchange, and equities as an asset class. Primary interests include equity investing from an international perspective, and FX fair values.

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Comments (11)

AndrewCopp profile picture
Anyone doing same?
pademau profile picture
Does someone has a good explanation for EWZ MASSIvely underperforming both the MSCI and Bovespa over the past 20 years ? Was considering EWZ for the long term but then realized Brazilian stocks were up a lot since 2000 while EWZ is down a lot. Can someone please elaborate ? Many thanks
bengalesq profile picture
Important questions - Why will they go up even if they are undervalued (which I do not think they are) - where's the real catalyst here? The UK is undervalued. It is a value trap. Waiting on a change of heart on investing there is like waiting on the sun to explode....it can outwait me. Earnings have gone up due primarily to currency and commodities and general instability and I wouldn't bet on any of that fixing itself soon or the continued upward trajectory in commodities. That's why RKT trades where it does - everyone knows it is coming back down. Cheap can always get cheaper.
Terra Brazilis profile picture
@bengalesq Exactly. Like I said, want to bet on some cheaper commodity plays? Might be a nice move. Wanna bet on the Brazilian economy as a whole? With Lula having a foot at the door? Wouldn't do that unless your tolerance for risk is very high. Odds wouldn't really be in your favor.
Terra Brazilis profile picture
Brazilian equities are indeed very undervalued, but for very good reasons. Lula is leading the polls(the man and his party being responsible for the biggest corrution scheme known to man and setting bakc the country by decades in the aftermath). He also recently announced that he is bringing Guido Mantega back into the fold(finance minister who was at the helm during the worst economic recession in Brazilian history since 1929 - back in 2015-2016).

I do see a lot of value in many Brazilian companies, specially ones who take their profits mainly from exports(i.e: commodities plays like Vale or Suzano). I would personally stay clear from any company that has its business mainly inside the country(except maybe financials) or any company that is majority owned by the Brazilian state(i.e: Petrobras). Unless off course you are fine with seeing your stocks bleeding through a new Lula government with Mantega by his side.
Lbastie64 profile picture
@Terra Brazilis I agree totally with you on Lula communist and corrupt policies.

Though, the Brazilian stock market did well under his presidency…
Terra Brazilis profile picture
@Lbastie64 There was a huge commodity boom during his two terms. I think he might strike lucky again, by the look of things. Anyway, I am long Vale, Gerdau and Suzano regardless of who gets elected. Unless he tries to revoke Vale's decades old privatization(not impossible) there is hardly much he can do to get in the way of these companies. Most of their profits come from dollarized exports. As for the other Brazilian companies? Unless we are talking banks, I would stay the fuck away. Just last wee Lula was talking about revoking Temer's working law reform for instance.
Lbastie64 profile picture
@Terra Brazilis what about GPA / CBD? The value is dirt cheap
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