Once considered "market friendly," Brazilian President Dilma
Rousseff has started to unnerve investment banks and drive the
Bovespa into a deep correction. Expect downgrades and maybe a few
bottom feeding opportunities.
[caption id="attachment_56850" align="alignright" width="300"
caption="Brazilian president Dilma Rousseff"]
Dilma has the analysts running scared. Most old Brazil hands
expect a lot of government interference with Vale (
) and Petrobras (
state-run pension funds control
But her recent efforts to
force private banks to lend
against their own policies take things to a whole new level.
The government doesn't control a bank like Itau (
), but it can direct its own lenders to loosen their standards. If
the private institutions want to compete, they have to follow the
lead or risk irrelevance -- or even, theoretically, regulatory
ITUB shares are off a full 30% since the local market peaked in
early March. VALE and PBR aren't doing much better, and because
these three stocks account for 35% of broad Brazilian funds like
) between them, we're now back in secondary bear market
With even the central bank now feeling the pressure to issue
reminding the world how "independent" it is, you have trouble.
Central banks need to be independent for modern markets to work.
Even questioning whether Brazilian rates are moving in the best
interest of the economy or to serve government policy makes the
entire exercise moot.
Look for sweeping downgrades from brokers -- now that Brazil is
down 20%, nobody wants to admit that they kept a "buy" rating on
Wait a bit for Wall Street to truly capitulate here, and then
things start getting interesting.