If you've been paying attention to headlines about Brazil recently, the term "impeachment" seems to be all over the place. But what's really driving prices upwards in the country's stock market? Is it the daily swaying impeachment probability or something else?

Today's instrument to be analysed is EWZ , the ETF that seeks to track the investment results of the MSCI Brazil 25/50 Index. The fund generally invests at least 95% of its assets in the securities of its underlying index and in depositary receipts ("DRs") representing securities in its underlying index. The index, which consists of stocks traded primarily on the BM&FBOVESPA, is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of the underlying index weight, and all issuers with weight above 5% do not cumulatively exceed 50% of the underlying index weight. The fund is non-diversified. (source:

The chart's left side is late October 2014, when president Dilma Rousseff got re-elected. As can be seen, EWZ price has since then maintained a close correlation with the price of other Emerging Market ETFs and Indexes

2015 was a perfect storm for Emerging Markets. With China's slowdown, a commodity crash, the strong dollar, a Fed rate hike, the light at the end of the tunnel was nowhere to be seen.

Many emerging markets depend on commodities like oil , iron and copper in order for their economies to do well.
Commodity prices tumbled in 2015, with Crude Oil hitting a 7-year low in December. Oil and other commodities are not set to boom in 2016, but they likely won't tumble as much as they did last year, specially if OPEC agrees on setting production quotas again.

China's Slowdown
China is transitioning to a consumer-led economy from one led by manufacturing and construction, meaning its demand for all those commodities has plummeted.
China has been cutting rates, weakening the currency and pumping money into the economy to counteract the slowdown.
Many experts believe China's growth may slow down more in 2016, but not at a faster pace. A more stable China should help the countries that depend on it.

Strong Dollar and Rate Hike
The good news is that a weak currency lets emerging markets sell products abroad more cheaply, making them more attractive to foreign buyers. That eventually boosts exports and, in turn, economic growth.
The bad news is that emerging markets have to pay off some debt in U.S. dollars. In total, there's $3 trillion of emerging market debt denominated in dollars, according to Wells Fargo. As the dollar rallies, that debt gets more expensive to pay back.
The rate hike makes the US Bonds more attractive and attract foreign money to the US. This money has to be exchanged into US Dollars and ends up boosting the currency.
Many leaders in emerging markets are actually glad the Fed finally raised rates. So much uncertainty surrounded the first rate hike, and now that it's done, that gives emerging markets more clarity.

With all this in mind, it's silly to say Dilma's possible impeachment is the main responsible for the upwards drive in Brazil's stock market prices...
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