Brazilian ETFs have suffered significant falls over the past week as politics, recent labour strikes and lacklustre economic growth have combined to force investors to take a cautious stance.
Over the past month to 7 June, Brazilian Stocks ETFs have fallen a massive 17.6%, according to TrackInsight data, as the Brazilian Bovespa index tumbled for four straight sessions last week, to close at 72,942 points.
The benchmark index fell nearly 6% over the five-day period, hitting a 2018 low, as investors and traders were spooked by an upcoming election in October, in which the market-friendly candidate is not expected to gain a majority, according to polls.
According to Reuters, experts are worried that the current government, and the next one, do not have the interests of the market at heart, following an intervention in the dealings of oil company Petroleo Brasileiro (more commonly known as Petrobras). Investors are also disheartened by the government’s move to impose price controls after a recent truckers’ strike.
On top of the political concerns, investors are no doubt worried about the strength of the US dollar against the Brazilian real, which fell to its lowest point in two years last Thursday. In the last two days of the week, the currency dropped 4% against the US dollar and over the year so far the real has lost some 15% of its value against the greenback.
However, the currency rebounded in Friday, rising some 4.1% against the US dollar to R$3.7134, after an intervention from the central bank, which has committed to selling an additional $20 billion in daily currency swaps, on top of the $750 million a day originally planned. The bank’s governor, Ilan Goldfajn, also said liquidity would be provided to the foreign exchange and interest rate markets as long as needed.
Meanwhile, despite the strong sell-off in the market, Brazilian Stocks ETFs saw €22.3 million of daily inflows on Thursday 7 June and overall inflows have picked up throughout June so far, suggesting investors consider the equities cheap and expect a rebound in the Brazilian market.
Latin American woes
Latin American ETFs as a whole have been hit by the recent turmoil in Brazil, down 13% over the month to 7 June, and low investor sentiment towards the region has meant that flows for the period are at a negative €313 million.
But Brazil is not alone in causing this attitude towards the region. Mexico has also experienced its fair share of turmoil, with Mexican Stocks ETFs down 8% over the month.
Fears have been escalating over the relations between Mexico and the US, amid a looming trade war and concerns that the US could scrap the North American Free Trade Agreement (NAFTA). However, despite the poor performance, flows into these products remain positive at €188 million for the period.
Meanwhile, another Latin American country facing an uncertain political future is Colombia, where the presidential election on 27 May did not yield a clear majority, meaning the country will go to the polls once again on 17 June.
On a wider scale, sentiment for the entire emerging market region has been negative over the past month, with nearly €2 billion leaving the sector during the period, according to TrackInisight. This is despite returns for this broader sector remaining positive at 2.5% (see chart below).