Come on, Brasília! That’s JPMorgan’s view on Brazilian stocks in 2021. The investment bank expects the country’s main stock market indicator, the Ibovespa, to hit a year-end high of 134,000. amid continued transition from tech names to cyclical plays in financial and commodity materials. sectors as global economic activity recovers.
“We expect a return to growth and a slight weakening of the U.S. dollar globally, which will allow value stocks to continue to rally,” said Emy Shayo, head of equity strategy at the company. told Bloomberg in an interview late last year.
Key points to remember
- Brazilian financials and materials stocks are well positioned for the ongoing rotation into cyclical stocks as global growth slowly recovers.
- iShares MSCI Brazil ETF (EWZ) stock price climbed towards the upper trendline of a period of consolidation, opening the door for an impending breakout.
- The VanEck Vectors Brazil Small-Cap ETF (BRF) found support near the 50-day simple moving average (SMA) and a key horizontal trendline in a move that could lead to further buying in the coming weeks.
The banking and mining-heavy Ibovespa index is trading just below 124,000 through Tuesday’s close, offering an 8% premium to those who agree with JPMorgan’s call. Traders can access Brazilian stocks through these two themed exchange-traded funds (ETFs). Below, we take a closer look at each fund’s metrics and use technical analysis to identify crucial chart levels to watch.
The iShares MSCI Brazil ETF (EWZ)
Launched in 2000, the iShares MSCI Brazil ETF targets a return similar to that of the MSCI Brazil 25/50 Index, a benchmark of large and mid-cap companies traded on Brazil’s B3 stock exchange. The fund offers a large bet on financials and basic materials, allocating 28% and 21% respectively to these sectors. Iron ore mining giant Vale SA (VALE) has the largest share allocation at 16.5% in a basket of 57 stocks. From a trading perspective, more than 25 million shares change hands daily on an extremely slim average spread of 0.03%.
As of January 13, 2021, EWZ had net assets of $6 billion, offered a dividend yield of 1.71%, and traded up 31.05% over the past three months. The fund has gained 2.7% since the start of the year.
The ETF’s stock price climbed towards the upper trendline of a six-week consolidation period during Tuesday’s session, opening the door for an impending breakout. Additionally, the 50-day SMA moved back above the 200-day SMA in late November to form a golden cross, a signal often marking the start of a new uptrend. Traders should look for a retest of the 2020 high at $48.48 while managing risk with a stop placed below the year-to-date (YTD) low at $35.77.
A Gold Cross is a bullish chart pattern in which a relatively short-term moving average crosses above a long-term moving average. This usually indicates a bull market on the horizon and is reinforced by high trading volumes.
The VanEck Vectors Brazil Small-Cap ETF (BRF)
As its name suggests, the VanEck Vectors Brazil Small-Cap ETF provides exposure to Brazilian small-cap stocks by tracking the MVISA Brazil Small-Cap Index. The fund favors financials, allocating around 25% of its portfolio to the sector, while industrials represent 17.59% of assets.
Basic materials also feature prominently with an allocation of around 10%. An average spread of 13 cents, coupled with sporadic trading volumes, justifies the use of limit orders when trading. BRF holds $54.65 million in assets, issues a yield of 1.65% and has jumped 22.56% in the last three months to January 13, 2021. Year-to-date, the fund has decreased by 0.80%.
The ETF filled many of its pandemic-induced selling gaps in March as the price rose through the first half of December. More recently, a pullback over the holiday period found support near the 50-day SMA and a key horizontal trendline in a move that could lead to further buying in the coming weeks. Those opening a long position at these levels should set a take profit order near $28, where the price may find resistance near the January 2020 high. Cut losses if the fund fails to hold at the above support at $19.
Chart resistance It is the price at which an asset encounters pressure in its progression by the emergence of an increasing number of sellers who wish to sell at this price.
Disclosure: The author held no position in the aforementioned titles at the time of publication.