Brazilian equity ETFs have been seeing inflows despite political turmoil in the country which sent its stockmarket crashing 10% earlier in the month, after talk of its new President’s potential impeachment.
According to TrackInsight data, Brazilian Stocks ETFs saw cumulative inflows of €546.21m between 18 and 26 May, as investors appeared to be buying into the market dip.
Brazil’s Bovespa index plunged 10% on 17 May, causing a 30-minute halt in trading, while MSCI Brazil dropped 15% and the real fell 7% against the US dollar, after President Michel Temer was implicated in a corruption scandal and calls were made for his impeachment.
According to Brazil’s newspaper O Globo, Temer allegedly supported attempts to buy the silence of a former coalition ally, though he has denied the allegations and so far has refused to step down as a result of the scandal.
However, though the market reacted with shock at first, sentiment quickly recovered and money began flowing into Brazilian equity ETFs, as investors took advantage of the slump in valuations.
For many who hold money in Brazilian equities, the drop created an opportunity to top up positions in stocks that had become overvalued. Between the 1 January 2016 and 16 May 2017, Brazil’s Bovespa index has gone up 58% and MSCI Brazil was up 56%, according to FE Analytics, making it one of the strongest performing markets globally.
Meanwhile, Brazilian stocks have already begun showing signs of a rebound, with ETFs tracked by TrackInsight up 2.5% as of 26 May. The resilience of the Brazilian market to political turmoil is yet another sign that markets have become complacent about external setbacks.
This was also clearly evident from the temporary market blip caused by talk of impeaching US President Donald Trump, which briefly led the VIX, an index used to gauge volatility on Wall Street, to see its biggest jump since the Brexit vote in the UK. However, the index soon returned to its previous lows and is currently sitting at just 9.81 points, near its lowest ever close at 9.48 in December 1993.
For those wishing to allocate to Brazil to take advantage of the drop in valuations, there are 20 different indices to choose from and TrackInsight analyses 28 funds tracking those indices.
The largest ETF by far is the €5.2bn iShares MSCI Brazil Capped ETF, which tracks the MSCI Brazil 25/50 Net Total Return index in US dollars, though it only has a two-star rating. Funds on the list with a five-star rating are the €2.6bn iShares Ibovespa Fundo de Indice, and the €320m Lyxor Brazil (IBOVESPA) UCITS ETF.
But investors must be aware that, being an emerging market and facing considerably political turmoil, Brazil is an adventurous place to invest!