iShares MSCI Brazil Small-Cap ETF

EWZS

Market cap $364M

Brazil's benchmark Ibovespa fell about 1% on Friday, slipping below the 179,000 mark as investors recalibrated expectations in response to a more cautious tone from central banks and escalating geopolitical tensions in the Middle East. The decline reflects a broader reassessment of monetary policy trajectories, particularly as rising energy costs revive concerns about inflation.

Strong foreign capital inflows into Brazil, supported by one of the highest real interest rate differentials globally, have been a key driver of the recent rally in Brazilian equities. As monetary policy begins to shift toward easing, domestically exposed small caps could become the next leg of the Brazil trade. EWZS provides diversified exposure to Brazilian small-caps that act as direct proxies for the domestic economy, unlike Brazil's commodity-heavy large caps.

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

Brazil's economy has improved since 2022, especially in controlling inflation, but faces slower GDP growth through 2026. The Finance Ministry cut its 2025 growth forecast to 2.2% after weak Q2 results, with projections below 2% for 2026 and 2027. The Central Bank's cautious monetary policy, keeping rates at 15%, supports inflation control but limits economic expansion.

iShares MSCI Brazil Small-Cap ETF is analyzed for its potential to deliver higher long-term returns than its large-cap counterpart. Focus is placed on the ETF's underlying holdings, emphasizing valuations, business quality, and growth rates over macroeconomic predictions. Short-term market noise and macro forecasts are intentionally disregarded to provide a clearer view of EWZS's investment prospects.

Brazilian stocks saw a strong recovery in August, going up 6% on the month according to the benchmark Ibovespa index. XP Asset's equity funds outperformed further, with returns between 8 and 9%.

Financial technology (fintech), broadly speaking, allows the remote delivery of financial services to businesses and individuals through computers or mobile devices. Fintech encompasses everything from smartphone apps to complex blockchain-enabled networks that facilitate financial transactions.

I recommend holding assets tracking major Brazilian indices despite new US tariffs, given heightened uncertainty and market volatility. Trump's 50% tariff on all Brazilian products will significantly impact Brazil's export-dependent economy, especially in commodities like oil and iron ore.

After years of volatility and underperformance, Brazilian small caps (via EWZS) are staging a strong rebound fueled by shifting global capital flows. Unlike commodity-heavy large caps, many small caps focus on Brazil's local economy, making them prime beneficiaries of a domestic recovery. Institutional buying and rising on-balance volume confirm that the current rally is backed by real money, not just hype.

Investors have ample reason to be concerned about the future of U.S. investment vehicles—mid-May's news of Moody's downgrade of the nation's credit rating and the resultant market shake-up and the lingering threat of dramatic tariff increases chief among them. Unsurprisingly, then, many investors may be likely to increase their exposure to international markets to avoid this turbulence.