RIO DE JANEIRO, BRAZIL – Amid signs of improved economic growth in Brazil, foreign investors placed US$634 million in the largest ETF (Exchange-traded fund) of Brazilian stocks, the ETF iShares MSCI Brazil, known as EWZ, in the week ended on December 10th.
This is the largest weekly inflow since September 2012 and almost half of the total US$1.4 billion that investors have added to the US-listed fund since the beginning of the year. The EWZ currently holds US$10.8 billion in assets.
Strategists are more optimistic about Brazil amid signs of a stronger economic recovery, better-than-expected GDP data in the third quarter, and the faster pace of formal job creation in November, in addition to growth in retail sales in October.
“The positive result of structural reforms” has reduced real interest rates, said Will Pruett, the Boston-based manager of Fidelity Management, which holds approximately US$542 million in securities. “If inflation and risk premiums remain at current levels, I believe we will likely see significant flows into credit-related products, real estate, and equities.”
The market should also continue to benefit from the migration of investments in government bonds and bank savings to the stock market, as an environment of low interest rates encourages the search for better returns.
However, foreigners have been less optimistic than locals when it comes to Brazil. Foreign investors pulled about R$15 billion (US$3.7 billion) from Brazilian stocks since the start of the year through December 17th, according to B3 data. Excluding the inflow of stock offerings, net outflows increase to approximately R$42 billion.
Yet, the global appetite for Brazil and other emerging markets has improved recently. Incoming ETFs from emerging markets hit a record last week when stage one of the US-China trade agreement reinforced optimism regarding riskier assets.
The IBOVESPA is expected to increase 15 percent by the end of 2020, according to an average estimate by ten Bloomberg strategists. This would mark the fifth consecutive year of gains, the longest period of positive returns in five years since 2004/2007.
Source: Infomoney