Brazil ETFs Fall as President Temer Faces Corruption Charges – May 19, 2017

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Brazil is in the middle of yet another crisis. This time, the current President, Michel Temer has been accused of bribing Eduardo Cunha to “remain silent”. Cunha, the former speaker of the house, had an important role to play in last year’s impeachment of former president, Dilma Rousseff.

O Globo, a major newspaper in Brazil reported that a tape has been obtained by the Supreme Court that was submitted by two senior executives of JBS, a meat packing company, in exchange for a plea deal. The tape allegedly records Michel Temer approving a payment to Cunha.

According to the report, when Joseley Batista, chairman of JBS, presented Temer with the information that Cunha was being paid to remain silent, Temer said “You need to keep that up, okay?” However, the President’s office has denied any wrongdoing.

This issue comes just a year after Rousseff’s impeachment. Temer’s team has been working to introduce major reforms and austerity measures, which has been continuously opposed by Brazilians, taking his approval ratings to record lows (read: BRIC ETF BKF Sees Record Inflows).

The Federal Police of Brazil came up with Operation Carwash in March 2014, which has led to many political and business leaders getting convicted. Analysts believe if Cunha reaches a plea deal with investigators, he could provide significant information to further the goals of Operation Carwash.

Therefore, Temer faces multiple risks. First, Brazil’s electoral court has decided to look into the charges of illicit campaign financing, which may annul the 2014 Presidential election and even remove Temer from power. Moreover, if the alleged accusations are proved to be true, it could cause massive political uncertainty in Brazil. Opposition politicians have expressed their concern and are asking for Temer’s resignation or impeachment (read: Brazil Recession Worsens: Time to Buy ETFs on the Slump?).

Brazilian ETFs had a rough day. Let us discuss some ETFs focusing on providing exposure to Brazilian equities (see all Latin America Equity ETFs here).

iShares MSCI Brazil Capped ETF (EWZ Free Report)

This fund is the most popular ETF providing exposure to Brazilian equities. It focuses on the most liquid companies in the large-cap segment.

It has AUM of $5.80 billion and charges a fee of 63 basis points a year. Financials, Consumer Staples, and Energy are the top three sectors of this fund with 37.05%, 16.43%, and 12.78% allocation, respectively (as of May 16, 2017). The top three holdings are Itau Unibanco Holding Pref SA, Banco Bradesco Pref SA, and Ambev SA, with 11.65%, 8.64%, and 8.26% allocation, respectively (as of May 16, 2017). The fund returned 17.40% in the year-to-date time frame and 47.81% in the past one year (as of May 17, 2017). It fell 3.21% on Wednesday, May 17, 2017.

First Trust Brazil AlphaDEX Fund (FBZ Free Report)

This ETF offers a chance to gain exposure to Brazilian equities but is relatively expensive.

It has AUM of $167.24 million and charges a fee of 80 basis points a year. Financials, Utilities, and Materials are the top three sectors of this fund with 24.43%, 22.26%, and 21.32% allocation, respectively (as of May 16, 2017). The top three holdings for the fund are Itausa-Investimentos Itau SA, Companhia Paranaense de Energia-Copel, and Vale SA, with 3.66%, 3.27%, and 3.26% allocation, respectively (as of May 16, 2017). The fund returned 16.61% in the year-to-date time frame and 42.96% in the past one year (as of May 17, 2017). It fell 3.36% on Wednesday, May 17, 2017.

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Source: einnews.com