Trade view /
03 November 2015 at 13:54 GMT
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
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