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Brazil -
structurally bullish, tactically wary
Brazilian equities have been a star performer in 2022. As a resource rich country, they are a clear winner in a world where Russian isolation impacts commodities.
EWZ, the iShares MSCI ETF tracking Brazil, has been rich on Qi for a few months now. Currently, it is 1.7 sigma (15.2%) rich to macro. On Monday that Fair Value Gap was 2 sigma, a 1y high.

It is also rich versus its EM peers – EWZ vs. EEM is not in regime but it is 1.8 sigma (17%) rich to model.

There are clear reasons why Brazil has benefitted from the sanctions fall-out & why that premium versus macro fundamentals has existed. Why flag the FVG now?

Because RETINA™ has just flashed a bearish inflection signal - over the last 3 days both the spot price of EWZ & Qi model value have turned lower.
Screenshot 2022 04 07 At 082837
To reiterate, this is not a big bear call on Brazilian equities. The trend in the red line for Qi macro-warranted model value has yet to break the 2022 uptrend. The positive Terms of Trade shock for Brazil in the apparent new world order is hard to argue with.

But, near term at least, it appears as though the market has run a little ahead of itself. At a minimum, this is not the time to be adding fresh longs.
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