A Big Bet On A Leveraged Brazil ETF

Emerging markets stocks have recently taken their lumps, but Brazilian equities have been among the worst offenders.

On Friday, the MSCI Brazil 25/50 Index was sporting a second-quarter loss of 13 percent, and that Brazilian benchmark was spotted more than 17 percent below its 52-week high, putting it perilously close to a new bear market.

What Happened

Although commodities have been strong this year and Brazil is a major commodities producer, stocks in Latin America's largest economy are sagging for a variety of reasons. Investors are skittish about the impact of the stronger dollar on Brazilian assets and markets were recently disappointed by Brazil's own central bank opting not to lower borrowing costs. However, the central bank there did pledge to keep rates low.

Recently, Brazilian President Michel Temer abandoned plans to run for reelection, throwing his support behind Finance Minister Henrique Meirelles. Brazil holds national elections in early October, a scenario to monitor given the country's history of political volatility.

Why It's Important

Some signs point to traders wagering on Brazilian stocks rebounding and some are doing so with the Direxion Daily MSCI Brazil Bull 3X Shares BRZU.

BRZU, which is a triple-leveraged take on the MSCI Brazil 25/50 Index, hauled in $53 million in new assets on Monday, according to Bloomberg.

Other signs indicate traders have been revisiting BRZU. For the five days ended May 21^st, BRZU's volume was nearly 85 percent above the trailing 20-day average, according to issuer data. Additionally, BRZU has been averaging daily inflows of $4.51 million over the past month.

What's Next

When properly deployed, meaning over short-term holding periods, BRZU can be an aggressive trader's dream. The three-year standard deviation on the MSCI Brazil 25/50 Index has a three-year standard deviation of 33.83 percent, more than double the same metric on the MSCI Emerging Markets Index.

Not surprisingly, BRZU has been one of Direxion's most volatile leveraged bullish funds over the past month, according to issuer data. BRZU's penchant for volatility serves as a reminder that as a rapidly as the fund jumps, it can move lower in equally fast fashion.

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