Brazilian Volatility in the Streets and in the Markets

With the two day Fed meeting kicking off today some other news seems to be flying under the radar.  One piece of news is that civil unrest was widespread in Brazil today with 200,000 protesters taking to the streets in many cities.  The straw that broke the camel’s back was a hike in the cost of public transportation.  What is interesting is this wave of protests is in conjunction with what appears to be a difficult economic environment for Brazil.

The economic woes have resulted in ratings downgrades as well as pressure on the Brazilian stock market for most of 2013.  There were some high hopes among market forecasters that 2013 would be a good year for this market as 2012 was a difficult one that even saw over a 20% drop in stocks just about 12 months ago.  The feeling was it was time for Brazil to rebound and probably the easiest way for US investors to play this rebound would be through a long position in the iShares MSCI Brazil Capped Index (EWZ – 46.72) which is down about 16.5% for the year.   For most of 2013 the EWZ has had trouble mounting a gain, but the CBOE Brazil ETF Volatility Index (VXEWZ – 34.75) did not reflect EWZ’s struggles until the past few weeks.


As the Fed decision passes and the markets begin to focus elsewhere the Brazilian market may come into focus.  The VXEWZ level is close to peak levels from last year when EWZ bottomed out.  Keeping an eye on VXEWZ for the end of this round of volatlity in EWZ might be a good early indication of EWZ bottoming out again.