EWZS: Why Brazil's Rate-Cut Cycle Could Lift Small Caps Next

Bernard Zambonin1.52K FollowersFollow5ShareSavePlay(11min)CommentsSummaryStrong foreign capital inflows into Brazil, supported by one of the highest real interest rate differentials globally, have been a key driver of the recent rally in Brazilian equities.As monetary policy begins to shift toward easing, domestically exposed small caps could become the next leg of the Brazil trade.EWZS provides diversified exposure to Brazilian small-caps that act as direct proxies for the domestic economy, unlike Brazil’s commodity-heavy large caps.With small caps still trading at a meaningful valuation discount relative to large caps, a continuation of capital rotation could support a catch-up trade in EWZS. dabldy/iStock via Getty Images Thesis Building on my previous article, I reiterate my bullish stance on the iShares MSCI Brazil Small-Cap ETF (EWZS), supported primarily by the ongoing strong foreign capital inflows into Brazil and the startThis article was written byBernard Zambonin1.52K FollowersFollowEquity Research Analyst at DM Martins Research.I cover stocks that are often undercovered, focusing primarily on Brazil and Latin America — but I also occasionally write about global large caps. My work can also be found on TipRanks, where I contribute regularly, and on TheStreet, where I was a frequent contributor in the past.- Disclaimer: All views expressed here are my own and do not necessarily reflect the views or official positions of DM Martins Research. My articles and analyses are for educational and informational purposes only and should not be taken as investment advice. Always do your own due diligence before making any investment decisions.Analyst’s Disclosure: I/we have a beneficial long position in the shares of VALE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.