Tag Archives: brazil

Russia: Surprise BRIC ETF Winner So Far This Year

Russia has hardly raised a toast to its economy in nearly two years thanks to the ban imposed on the nation by the West following its Crimea (erstwhile Ukrainian territory). Plus, the acute and persistent crash in oil prices in the second half has wreaked havoc on Russian stocks and ETFs in the last one and a half years. Apprehensions of significant economic losses and a five-year low GDP growth in 2014 led investors to excuse themselves from Russia. As a result, the biggest Russia ETF Market Vectors Russia ETF (NYSEARCA: RSX ) lost 42.3% in the last two years and 20.7% in the last one year (as of November 2, 2015). The economy has hardly shown any sign of a meaningful turnaround with its GDP shrinking 4.3% year over year in Q3. Its economy is also predicted to be contracting 3.3% in 2015. Yet RSX has managed 16.5% gains so far this year on the back of its dirt cheap valuation. If this was not enough, following the October Fed meeting, which once again sparked off the December rate hike talks, gave this Russia ETF a boost to emerge as a winner in the BRIC ETFs pack, per barrons.com . Needless to mention, emerging market investing is always threatened by Fed policy tightening as it might lead to a cease in cheap dollar inflows. But Russia ETFs have defied this norm this time while the other pillars – Brazil, India and China – followed. Below we highlight the last five-day performance of BRIC ETFs, which shows that RSX and small-cap Russia ETF Market Vectors Russia Small-Cap ETF (NYSEARCA: RSXJ ) were up 0.9% and 1.5%, respectively, while large-cap India ETF INDA and the China ETF MCHI lost about 2.9% and 2.3% and Brazil ETF EWZ added 0.6%. What’s Behind This Optimism? The main driver was the central bank meeting held at October end, wherein Russia’s central bank maintained its key interest rate, but hinted at rate cuts in the coming months as inflation is showing signs of abating, though slightly at the current level. As per Bank of Russia , the annual pace of inflation is projected under 7% for October 2016 and at 4% for 2017. The bank indicated that the reasonably tight monetary policy and soft domestic demand due to reduced expansion in the nominal income of the population will curb inflation. Along with this, the backing off of tanks and weapons by government troops and separatists in eastern Ukraine strengthened the bet over a stable truce. This should in turn lessen international sanctions against Russia, per Bloomberg . Also, the oil price recovery in early October (as Russia is a major oil-exporting nation) and weakness in the greenback last month lent this woe-begotten economy and its currency and stocks a nice bounce. Ruble gained over 23% as of November 2, 2015 from this year’s low hit in May. Best Performance in BRICS While Russia ETFs are roaring back on speculations of sooner-than-expected rate cuts, Chinese ETFs have seen a tumultuous year on slowing economic growth and overvaluation concerns. India ETFs also haven’t been able to live up to investors’ expectations as pro-growth reforms are taking time to turn into reality. And Brazil has its long-standing economic issues of slowing growth and rising inflation. Economists predict that Brazil’s economy will shrink 3.02% in 2015 and 1.43% in 2016. Brazil is nearing the worst economic debacle in 25 years. So far this year (as of November 2, 2015), ETFs on other BRIC nations – Brazil (NYSEARCA: EWZ ), India (BATS: INDA ) and China (NYSEARCA: MCHI ) – are down 36%, 4.3% and 4.9%, respectively while Russia ( RSX ) is up 16.5%. Thus, investors might consider betting on the Russian equities ETF space on this nice price surprise. As a caveat, they should note that the economy is still soft and might be vulnerable to the Fed’s interest rate policy. The U.S. central bank will likely hike its key rate by this year-end or early next year putting many emerging markets including Russia, at risk. Oil prices are still to regain the lost ground. So, ample downside risks stay hidden in this investment. RSX, iShares MSCI Russia Capped ETF (NYSEARCA: ERUS ), and SPDR S&P Russia ETF (NYSEARCA: RBL ) have a Zacks ETF Rank #4 (Sell) each with a High risk outlook while RSXJ carries a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook. Original Post

EWZ October Review: The Brazilian Market Grows, But Major Risks Still Remain

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.

ETF Research Trading Analysis For 10-27-2015

Summary We took profit from both JNUG and JDST on Tuesday. DWTI doing well for us along with DGAZ. Reminder it is Fed week and expect some volatility – which we don’t mind. (Subscribers received early access to this article here .) INDEXES The markets opened down a bit on Monday as housing starts fell more than expected. It tried a couple of times to get going but it just couldn’t get over the hump. The ProShares UltraPro QQQ ETF (NASDAQ: TQQQ ) was the only one that could move higher ending positive for the day. If the market opens higher tomorrow I would look to trade the ProShares Short VIX Short-Term Futures ETF (NYSEARCA: SVXY ) and the Direxion Daily Financial Bull 3x Shares ETF (NYSEARCA: FAS ). It’s Fed week and I said in Sunday’s article to subscribers I like the ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA: UVXY ) during Fed week as we usually get a lot of volatility, opened at 28.50 Monday and went as high as 29.65, closing near the high of the day at 29.51. I would be a buyer over 29.65 Tuesday. If it gaps up buy the higher high. CHINA/RUSSIA/EMERGING As I wrote in my Current Thoughts on Monday referencing China, the country has some big issues ahead of it with its shadow banking that we here in the U.S. have already experienced. I have said for the longest time I like the Direxion Daily FTSE China Bear 3x Shares ETF (NYSEARCA: YANG ) on dips but thought we would get a reversal to play with a potential U.S. market move higher. Two days in a row of weakness and we may be done with the Direxion Daily FTSE China Bull 3x Shares ETF (NYSEARCA: YINN ). I am still holding out hope but the truth about China is going mainstream now. I even said that would be back over 100 again and I think it will at some point. The Direxion Daily Russia Bear 3x Shares ETF (NYSEARCA: RUSS ) has really lagged the last run up and I would be a buyer over 31 Tuesday. The Direxion Daily Russia Bull 3x Shares ETF (NYSEARCA: RUSL ) is still a buy over 17.24 but these two have not triggered green on the weekly yet. The Direxion Daily Emerging Markets Bull 3x Shares ETF (NYSEARCA: EDC ) opened lower and this uncertainty is causing me a little concern in that the Direxion Daily Emerging Markets Bear 3x Shares ETF (NYSEARCA: EDZ ) may now become the play. We’re only 3 points away from a run in but first need to take out 39.20. Being that it is Fed week, either one of these can offer some trades on a higher high. With the Direxion Daily Brazil Bull 3x Shares ETF (NYSEARCA: BRZU ), we stopped out with some profit Friday and it did open higher at 18.69 Monday and went as high as 17.28 but then fell with the overall market. If you did get in again, it may have got you a little profit but I can’t say I like it now. Volume was pathetic Monday. INTEREST RATES As you know, I have been saying for 6 months now I like the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) on the dips but thought the ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA: TBT ) would move higher with a turn in the market. With it gapping down at the open Monday was obviously taken off the table. Interest rates on the 10-year were down 1.4% Monday and TLT is looking closer to a run once it gets over 126.61. First up, the 124.55 resistance. PLEASE NOTE: I have to keep reminding everyone that during Fed week, we get more volatility than normal. Monday was the first example with a reversal of Friday’s run up. Tuesday, we could very well get a reversal higher and it’s easy to switch sides after recognizing it. But today’s report is written mostly with the assumption that Tuesday’s micro trend is continued. In the Trading room, I call it like I see it during market hours and it was a good day for us Monday. ENERGY I said at the close on Friday I like the VelocityShares 3x Inverse Crude Oil ETN (NYSEARCA: DWTI ) at 109.80 where it ended the day. It gapped up Monday and I emphasized in the room that I still like it and gave again my target at some point of 200 again, which we played the last run up to over 200. It closed at the high and is up to 116.81 after hours. Stay long and strong now. Dips will come to try and shake you out and if you want to take profit then do so as you can always get back in. Past 124.25, which may act as resistance, I would stay in for a nice ride. For the VelocityShares 3x Inverse Natural Gas ETN (NYSEARCA: DGAZ ) I said to stay long and strong in Sunday’s report and move stops up to where you lock in profit now or 9.74 if conservative. Monday, we got the gift of a gap up to 11.05 and it never looked back. I said in the room Monday a couple of times to lock in some profit as it got to the upper $11s and again just over $12. We have had a 30% run in this and nothing goes straight up. As such, I have put the VelocityShares 3x Long Natural Gas ETN (NYSEARCA: UGAZ ) on the one to watch list. The Direxion Daily Natural Gas Related Bull 3x Shares ETF (NYSEARCA: GASL ) I keep saying another day another 4% lower and Sunday I wrote, “I would only run from it.” Monday for the first time in a while, I don’t have to say it lost 4%, as it lost much more down 17.84% for the day. I am now putting it on the watch list as the volume increased which is either sellers or some buyers coming in. We can get a 10% to 20% bounce in this quickly but again, keep in mind it is a lower volume play. I only want to buy it on an up day, not chase it down. The Direxion Daily Energy Bear 3x Shares ETF (NYSEARCA: ERY ) is the one making higher highs for us. Be a buyer over 24.55 Tuesday. It is 24.43 after hours. Energy not behaving very bullish and looks like it wants to run. Some resistance around 28 and then 30. GOLD MINING RELATED ANALYSIS The Direxion Daily Junior Gold Miners Index Bear 3x Shares ETF (NYSEARCA: JDST ) gave way to the Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (NYSEARCA: JNUG ) in the trading room Monday and we scalped a little off on an intraday reversal. Then we got full on long again and I recommended holding. We have to get through 24.50 now and then 25.35 and 26.74. Past 30.58 we are off to the races. I have been waiting for a while now to get long and stay long and even though reversals come, the dollar is poised to move higher and we just need gold and silver to move lower. As you can see from the first sentence though, even though I have been waiting for a great trade in, I can still trade the other side for profit if it comes. (click to enlarge) (click to enlarge)