iShares MSCI Brazil Small-Cap ETF

EWZS

Market cap $233M

Brazil's ethanol and sugar producers on Thursday despaired at the imposition of new 25% tariffs on Brazilian goods by the U.S. government, ​lamenting a rollback in cooperation between the two countries.

Brazil's president called the levies “a lamentable milestone” in the relationship between the two most populated countries in the Americas.

The U.S. plans to impose a 25% tariff on most imports from Brazil starting next week. A separate U.S. probe into forced-labor enforcement has also proposed an additional 12.5% duty on Brazilian goods that would stack on top of the 25%, with a decision due within days.

The United States accused the country of unfair trade practices. The tariff will replace ones that the Supreme Court struck down.

Brazil's Agriculture Ministry has adjusted export controls for meat and derivatives ​to meet European Union antimicrobial usage requirements, ‌aiming to prevent a suspension of shipments to the bloc starting in September.

A Brazilian Senate committee on Wednesday advanced a bill to grant the central bank financial autonomy, boosting its independence in a move opposed by President Luiz ​Inacio Lula da Silva's administration.

U.S Trade Representative Jamieson Greer said that the investigation under Section 301 was launched at the direction of U.S. President Donald Trump.

Brazil expects to raise 50 billion reais ($9.92 billion) in what will be the most ambitious auction yet under its Eco ​Invest program, focused on developing advanced sustainable technologies in strategic ‌sectors, Rogerio Ceron, executive secretary of the Finance Ministry, told Reuters.

I reiterate my buy rating on the iShares MSCI Brazil Small-Cap ETF, citing a compelling cyclical opportunity. EWZS trades at 7.5x earnings, with a historical re-rating to 9x offering a potential 20% upside. Falling Brazilian interest rates provide a significant tailwind for leveraged small caps, improving financial results and economic conditions.

Brazil's current P/E of 12.5x versus emerging markets' 16.2x suggests a potential 29% upside if re-rating occurs post-election. Risks include Lula's political resilience, judicial influence, and historical underperformance at similar P/E levels, necessitating careful timing and monitoring.