We continue to see a powerful breakout in Brazil and with net short Ibovespa futures >$3.5B there is room for additional move.
Shorts are fundamentally compromised, but technically oversold sectors should remain nervous. With the government’s apparent sanity check at Petroleo Brasileiro Petrobras (PBR, quote) yesterday, there are many waiting for follow through in other highly challenged sectors.
Most hated and shorted remains utilities where once high dividend paying companies that were owned by some of the largest institutions in the world, were relegated to “no touch”.
They may be seeing more touch. Watch the banks as well as today’s Copom meeting (Brazil’s version of the “Fed”) signaled that rates are staying flat but they could go higher faster than people expected.
The dovish tone from previous statements has indeed been removed. Add in talk of moving 2H’13 infrastructure and spending projects forward, and you have a sense that more than just technicals say to buy Brazil. Readers can gain exposure to Brazil through iShares MSCI Brazil Capped Index Fund (EWZ, quote) ETF.