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Fiscal Factors Will Remain a Key Mover for This Brazil ETF

Despite Brazil’s economic challenges amid rising global interest rates and recession fears, the Direxion Daily MSCI Brazil Bull 2X ETF (BRZU) is up about 10% year-to-date. Fiscal factors will remain a key mover for this Brazil ETF in the months ahead.

For starters, like many central banks, Brazil’s central bank has wrestled with interest rate policy without upsetting economic growth in the process. Signs of dissipating inflation mount. If inflation eases, that should give bullish Brazil traders something to cheer about.

“Brazil’s annual inflation has eased to the lowest since 2020, intensifying a months-long public debate over the convenience of such restrictive monetary policy,” Bloomberg News reported.

Investors will also closely watch Brazil’s incoming President Luiz Inacio Lula da Silva. The first year of a president’s term tends to set the tone of what may come for the broader economy.

Apparently, Brazil’s new president is already giving the central bank a verbal flogging. He is on record saying high interest rates have spurred unemployment.

“In his first four months in power, Lula has repeatedly attacked the central bank, saying high borrowing costs fan unemployment,” Bloomberg reported. “His increased pressure spilled over to two recent congressional hearings where Campos Neto defended policymakers’ views, saying core gauges that strip out volatile items are still running hot.”

As mentioned, central banks around the globe currently struggle with how to raise rates without stifling economic growth. The recent data on inflation easing could be a sign that fewer rate hikes or even rate cuts could be forthcoming. If so, that would prove bullish for Brazilian equities.

“A key question is whether the government’s fiscal framework proposal prompts policymakers to adopt a less hawkish tone in their post-meeting statement. We think it will,” noted Adriana Dupita, Latin American economist.

Doubling Brazil Exposure

If Brazil’s economic growth continues despite tightening, BRZU would benefit. Bullish traders could use the fund to express their opinions on Latin America’s largest economy, but with double the exposure.

BRZU essentially gives traders 200% exposure to the MSCI Brazil 25/50 Index. The benchmark tracks performance of the large- and mid-capitalization segments of the Brazilian equity market. Together, these two segments cover approximately 85% of the free float-adjusted market.

Source : VettaFi