iShares MSCI Brazil ETF

EWZ

Market cap $6.93B

Stephanie Link, CIO at Hightower, joins CNBC's "Halftime Report" to detail her latest portfolio moves outside of the U.S.

Brazilian equities posted strong gains on Tuesday, supported by higher oil prices and fresh signs of improving domestic economic activity. According to InfoMoney, the Ibovespa — the benchmark index — advanced sharply after the opening bell.

2025 was a big year for ex-U.S. equities, as a declining dollar, tariff uncertainty, and domestic concentration risk drove investors abroad. Broad ex-U.S. equities performed well and rewarded those investors, but it was some notable subregions that really delivered.

What's driving the bull run in Brazilian stocks is the prospect of change under a new president after the election next October.

I maintain a Hold rating on EWZ and other ETFs tracking Brazilian indices, citing unattractive risk-return for long-term investors. Recent gains in EWZ are attributed to global factors like Fed rate cuts, not domestic macroeconomic improvements. Brazil's political landscape shifted as Jair Bolsonaro supports his son for 2026, increasing uncertainty and market volatility.

The iShares MSCI Brazil ETF has surged 48% year-to-date. EWZ's top position is Nu Holdings, a high-growth fintech that offers significant upside potential. I have some reservations about the Brazil ETF, which keep me at cautious optimism rather than an unabashedly bullish perspective.

Inflation is expected to remain sticky and GDP expected to range between 1.7 to 2.1% in 2026. The U.S. may avoid stagflation, but mild forms are present and may linger. While investors won't likely need to pull out the 1970s-1980s investment playbook, they are wise to consider the best stocks for mild stagflation. Classic stagflation investments include precious metals, consumer staples with pricing power, defensive healthcare, multi-line insurers, and some utilities.

Single-country funds can reduce overall portfolio risk by acting differently than the S&P 500, offering diversification beyond broad international indexes.

Part of the rally in Latin America stock funds is currency-related. But another driver is that the stocks are exceptionally cheap.

iShares MSCI Brazil ETF remains an attractive play for 2025, driven by BRL appreciation against the USD and appealing valuations. High-interest rates in Brazil and lower interest rates in the U.S. attract foreign capital, supporting inflows into stocks. Brazilian companies should continue to benefit from lower costs on dollar-denominated debt, improving earnings.