After a massive fall in the start of the year 2016, global markets (VEU) (VT) recovered from their respective lows on February 11, 2016. The slowdown in China’s economy (ASHR) (YINN) and the fall in commodity prices were the major reasons behind this fall.
The fall in commodity prices was the major reason behind the poor performance of the commodity-exporting countries like Brazil (EWZ), Chile (ECH), and Argentina (ARGT). However, commodity prices have displayed positive movement since mid-February 2016.
The recent performance of the Brazilian index shows that it is outperforming other emerging markets (EEM) (VWO) and developed markets (EFA). The iShares MSCI Brazil Capped ETF (EWZ) tracks the performance of Brazil’s economy. On July 19, 2016, this ETF has risen by 73% from its low of $17.33 on January 21, 2016.
The PowerShares DB Commodity Tracking ETF (DBC) has been showing a small drop in performance since June 8, 2016. However, Brazil is continuing its rise in performance despite the fall in commodity index.
EWZ is outperforming all major country- and region-specific ETFs, including those of the United States (SPY), Europe (FEZ) (EZU), China (FXI), and Japan (EWJ). The reversal in commodity prices from their multiyear lows and the expectation of a transition in Brazil’s political environment are driving this performance.
Various problems affecting Brazil’s performance
In our earlier article What’s Goldman Sachs’ Outlook in Brazil? we discussed various problems faced by Brazil and its economy, including:
- spiraling unemployment
- high inflation
- political turmoil
- stagnant economic growth
- high fiscal deficit
- deep recession
- downgrades from rating agencies
In this series, we’ll discuss whether Brazil can continue to rise despite the fall in commodity prices. We’ll see whether the Brazil’s non-commodity sectors could boost the performance of the economy.
As Latin America’s largest country in terms of population and land size, Brazil (EWZ) is becoming a key player among the emerging economies,
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