Brazilian ETFs Fall As Real Tumbles

March 14, 2012

U.S. investors suffer from real depreciation.

Brazilian ETFs, like the iShares MSCI Brazil Index Fund (NYSEArca: EWZ) and the Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF), tumbled sharply last week, as a falling Brazilian real drove down returns for U.S. investors.  The flagship EWZ, which has $10.6 billion in assets, tumbled 4.3 percent on the week.

As reported in the IndexUniverse weekly Currency Impact Report, the bulk of that move was driven not by the fall of the Brazilian stock market, but by a drop in the currency itself.  According to the report, the local MSCI Brazil index fell 1.24 percent last week, but the U.S. dollar version of the index fell 4.22 percent, as the real plummeted.  Currency returns contribute directly to the returns U.S. investors experience in international markets.

The real’s fall was driven in part by efforts by the Brazilian government and central bank to halt the currency’s rise. The real has surged against the dollar in recent years on the strength of the Brazilian economy, and the government has become increasingly concerned that the rising currency could harm exporters, by making their goods more expensive in the global market.  Most recently, the Brazilian government extended a 6 percent tax on foreign loans and bonds issued abroad by Brazilian companies.

That move was seen as another measure being used by the government to counter what Brazilian President Dilma Rousseff deems a “monetary tsunami.” Rousseff argued that rich nations, such as the United States, are seeking to devalue their currencies. As a result of the government’s aggressive measures, the real has become one of the worst-performing emerging market currencies this year, particularly after the sharp fall last week.

A Brief World Currency Tour

In other currency news, the euro lost ground against the dollar last week, bringing negative returns to U.S. investors in Germany, Spain and Italy.

Unsurprisingly, the Greek debt restructuring triggered payouts on credit default swaps, bringing some alleviation to Greek debtholders and some trepidation to Greek insurers.

Meanwhile, the New Zealand dollar gained ground against the U.S. dollar after the release of promising economic data that hinted at further growth of the kiwi economy with minimal inflation pressures.

Complete coverage of the impact of foreign currency movements on U.S. investor returns—as well as full data—is available in the IndexUniverse Currency Impact Report.

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