iShares MSCI Brazil Small-Cap ETF

EWZS

Market cap $172M

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.

Brazilian small-cap stocks have suffered recently and face further risks amid new trade war tensions, but they are very undervalued. Brazil's economic growth is expected to fall below 3% due to higher interest rates, trade war risks, and global macro tensions. The Central Bank may cut interest rates later this year to counteract inflation and a weaker currency.

EWZS's poor performance is attributable to the depreciation of the Brazilian Real. The US-China trade war can boost Brazil's exports to China and help the BRL stabilize. Further interest rate hikes are expected in Brazil due to the rising government debt. Monetary tightening can also support the BRL.