Strategic trade
Trade view / 03 November 2015 at 13:54 GMT

#SaxoStrats: Brazil to bottom out in Q4?

Head of Equity Strategy / Saxo Bank
Instrument: EWZ:arcx
Price target:
Market price:

Shares of the iShares MSCi Brazil Capped ETF are down 35% so far this year as the lowest commodity prices seen since 2001 are hurting the Brazilian economy and pushing up the unemployment rate. 

The stronger USD is also hurting Brazil’s credit rating with CDS at elevated levels.
Brazil is currently one of the world's cheapest equity markets with P/B of 1.1x and forward P/E of 12.4x driven by ROE compression and structural macro headwinds from the commodity cycle.

We expect macro conditions to bottom in Q4 despite the recent worsening of Brazilian manufacturing PMI prints. The downside risk from commodities is limited and a weaker BRL improves exports. Credit markets are also signalling an improved outlook.

Management and risk description

Key risks include weak Brazilian macro data, the Chinese slowdown further impacting commodity prices, and a stronger USD.

iShares MSCi Brazil Capped ETF (weekly):

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Source: Saxo Bank 


Entry: buy EWZ:arcx at market.

Stop: trailing stop at $19.08; steps of $0.44.

— Edited by Michael McKenna

For more on ETFs and equities click here.

Non-independent investment research disclaimer applies. Read more
Peter Garnry Peter Garnry
We were filled at $23.46...and the ETF jumped 5.7% in yesterday's US session
johnnyw johnnyw
Interesting point of view, do you think this because the commodities (CRB Index) appear to have hit the bottom. A lot of the economic data incl. manufacturing appears to be weak at the moment..interested to know..


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