Brazil ETF Breaking Down Ahead Of World Cup

With the FIFA World Cup 2014 in Brazil just one week away, organizers are scrambling to put the last minute touches on many key unfinished structures that will support this global sporting event. An estimated one billion people around the world will be watching the opening match, which makes this a key showcase for the Brazilian people and economy. 

While uncertainty surrounds the preparation of these new stadiums, the Brazilian stock market has also been on shaky ground lately.

The iShares MSCI Brazil Capped ETF EWZ tracks 75 of the largest stocks in this key Latin American country. Currently, EWZ has over $4.2 billion invested in a diversified basket of Brazilian equities and has been on the decline since hitting a year-to-date high in May. 

EWZ has slipped over seven percent in just a few short weeks and is clinging to a modest 2.75 percent gain so far this year. Brazil represents just over 10 percent of the broader iShares MSCI Emerging Market Equity ETF EEM, which has also managed to gain two percent gain in 2014.

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Emerging market stocks, and Brazil in particular, have been on the decline in recent years as investors have chased performance of domestic equities here in the United States. However, EWZ had been making a strong comeback since finding a bottom in February that has many investors considering repositioning their portfolios back into Latin America and emerging market economies.

The MarketVectors Brazil Small Cap ETF BRF is also at a critical cross-road of technical support that needs to hold if the rally in Brazilian equities is going to extend higher. This ETF has $160 million invested in 75 Brazilian small cap stocks and may be considered a complimentary position to a large-cap holding such as EWZ.

While the recent dip in EWZ and BRF may be the result of a short-term pull back, a strong showing of economic prosperity during the World Cup tournament may be just what this country needs to reinforce their stock market. 

A reflation of emerging market countries such as Brazil would be seen as a positive sign for global growth that has never been easier to tap using low-cost exchange-traded funds.