Brazil Kicked Off 2019 with a Bang

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Brazil Kicked Off 2019 With a Bang

Latin America’s biggest economy kicked off the New Year with a bang as a pro-business government took power.

The iShares Brazil ETF (EWZ) ripped 6.4 percent yesterday, its biggest gain since Jair Bolsonaro effectively won the presidency in early October. Brazil is not only the best performing of over 25 countries in the last two weeks. It’s also the only one on my RadarScreen® whose 50-day moving average is above its 200-day moving average — a potentially bullish signal.

Pension reform, accelerated privatizations and tax overhauls are the three most important policies of Bolsonaro and Economy Minister Paulo Guedes. They represent a sharp departure from years of socialist rule.

RadarScreen® with country ETFs. Chart highlights 50- and 200-day moving averages on Brazil ETF (EWZ). All prices reflect yesterday’s close.

Although the arrival of the new government is often likened to President Trump’s election in 2016, the situation in Brazil seems even more dramatic. The Latin American country’s economy, for example, struggled much more under predecessor Dilma Rousseff than the U.S. ever did under President Obama. Brazil has more state-run enterprises that can be privatized. Furthermore, Bolsonaro’s 55 percent electoral win seems to give him a clearer popular-vote mandate than Trump.

Weak Dollar Trend Emerging

The macro situation may also favor Brazil because money has been shifting away from U.S. dollar assets. This seems to result from the Federal Reserve scaling back planned interest-rate increases for 2019. Traders have already played the trend by going long precious metals and the Japanese yen (@JY).

The Brazilian rally also stands out because it’s so different from the situation in Asia. China’s factories are slowing because of its trade war with Trump. That, in turn, is taking a toll on South Korea and Malaysia. Did you know know the iShares Asia 50 ETF (AIA) has declined more than down 5 percent in the last month while the iShares Latin America 40 ETF (ILF) has eked out a small gain?

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Traders might want to watch this divergence in coming weeks — especially since we’re in a new year. (Mexico also has a big change in leadership under Andres Manuel Lopez Obrador.) Will investors seek new opportunities as older “growth” stories like Apple (AAPL) and China pause? Keep reading Market Insights for more.

In conclusion, Brazilian stocks have started to rally as most others languish. There may be reasons to think the trend will continue.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.