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Summary EWZ increased by 4.19% in October. The economy is in a bad shape, unemployment and inflation rates keep on growing and GDP should decline also in 2016. Rousseff’s approval rate is extremely low and the probability of an impeachment keeps on growing. The situation in Brazil is complicated and hard to predict. Shares of iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ) increased by 4.19% in October. Growth was fueled by growing commodity prices during the first decade of October, but as the commodity markets started to weaken again and some new negative news about the Brazilian economy were published, EWZ started to decline. The Brazilian economy is in a bad shape. The Brazilian government revised its 2015 GDP decline estimate from 2.44% to 2.8%. It also estimates the 2016 GDP decline at 1%. Government debt should grow above 70% of GDP in 2016. The unemployment rate is at 7.6%, which is a huge increase compared to last year’s 4.9%. And there is also the inflation rate of 9.79%. And the political crisis deepens as well. The opposition filed a petition for the impeachment of president Dilma Rousseff. The petition is based on the ruling of the federal audit court that Rousseff’s government manipulated the accounts to hide the real extent of government deficit in order to enable a higher level of government spending before the presidential elections. Rousseff’s approval rate is below 10%, according to recent opinion polls. The 8 biggest holdings of EWZ remain the same as in September. The biggest weights have shares of the beer and soft drink producer Ambev (NYSE: ABEV ) (10.72%) and preferred shares of Itau Unibanco (NYSE: ITUB ) (9.49%). The combined weight of common and preferred shares of Petrobras (NYSE: PBR ) is 6.28%. The 15 biggest holdings represent 62.22% of EWZ’s portfolio. Source: own processing, using data of iShares.com EWZ share price increased by 4.19% in October. Out of its 15 biggest holdings, the best results were achieved by Embraer (NYSE: ERJ ) and Petrobras. Shares of the airplane maker Embraer grew by more than 10%. It was second consecutive month of double-digit gains for the company. The share price was supported by new airplane orders. Petrobras shares had a great start to the month, as oil prices spiked and the company announced huge spending cuts. Although the initial enthusiasm faded gradually, the oil giant finished October up by almost 10%. On the other hand biggest decline was recorded by BRF-Brasil Foods (NYSE: BRFS ). Shares of the major refrigerated and frozen food producer declined by almost 15%. Most of the decline occurred after the company announced its Q3 2015 financial results. (click to enlarge) Source: own processing, using data of Bloomberg Petrobras still shows its importance for the Brazilian economy and the stock market and it maintains very high and stable correlation with EWZ. On the other hand, the correlation between RSX and the United States Oil ETF (NYSEARCA: USO ) and between RSX and S&P 500 declined strongly during the last two decades of October. (click to enlarge) Source: own processing, using data of Yahoo Finance Volatility of EWZ share price was very high during the first half of October, when it reached a new 2015 high at the 7% level. But the situation calmed down rapidly in late October and the 10-day moving coefficient of variation declined to levels last seen back in early July. However, given the pattern from the last months, the relatively calm time period probably won’t last for too long. (click to enlarge) Source: own processing, using data of Yahoo Finance Some of the more interesting news: Petrobras announced that it plans a partial spin-off of Petrobras Gas. Petrobras also revealed the September production numbers. The company produced 2.72 million barrels of oil equivalent per day in September. It represents a 5.55% decline compared to August. Petrobras confirmed its 2015 and 2016 production targets and announced the intention to divest $14.4 billion in 2016. The 2015 and 2016 investments were cut by $11 billion. Embraer announced that SkyWest (NASDAQ: SKYW ) ordered 19 E175s jets. The company also estimates that there will be demand for more than 1,500 new 70-130 seat airplanes in Europe over the next 20 years. BRF-Brasil Foods announced the acquisition of sausage, hamburger and margarine trademarks present in the Argentinean retail market. The transaction was worth $43.5 million. The company also announced that it intends to acquire a part of the frozen distribution business of the Qatar National Import and Export Co. Vale announced that it produced 88.2 million tonnes of iron ore in Q3 which is a new production record. The company also announced that it has become the lowest-cost iron ore producer in the World, with cash costs as low as $12.7 per tonne. Conclusion Although EWZ grew in October, there are a couple of issues that prevent any sustainable long-term growth. The Brazilian economy has a lot of problems. Commodity prices are weak. Various foreign entities sued Petrobras due to the corruption scandal and kick-back schemes. And the position of president Rousseff seems to be more and more unstable, and the probability of an impeachment grows. Although the impeachment may be welcomed by financial markets in the end, the initial period of insecurity may hit the Brazilian stock market hard. It would be too brave to claim that the bottom has been already reached and growth will continue.