Inflation, currency woes torment Brazilian stocks

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A recent article in the Financial Times' beyond brics section proclaims the end of the era of investor favor showering on the South American economic titan of Brazil. Bloomberg News reports  that Brazilian stocks have now slipped into a bear market, while the real is suffering from government currency controls designed to have just that effect .

Is the situation so dire for the first and only non-Asian BRIC nation?

There are many reasons to suspect that Brazilian equities ( EWZ ) could suffer in the coming months. If the United States does indeed miss its deadline on raising the debt limit , stock markets around the world would suffer immediately. Rising costs on U.S. debt would unsettle the basic structure of the bond market, and a dip back into recession or depression would negatively impact demand for the oil, steel and grain commodities that make up much of the South American nation's export market.

Another problem is that many of Brazil's woes stem from its own success - the popularity of Brazilian bonds and assets over the last few years pushed the currency to record highs - good news for the country's companies and consumers shopping inside the U.S. , but bad news for export-focused businesses.

As the FT suggests, however, a more bearish Brazil trade could be an indicator of deals to be found and potential growth if the economy can shake off its inflation and currency-related doldrums.

Disclosure: The author is long Petrobras ( PBR ) and Embraer ( ERJ ).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: News Headlines , International

Referenced Stocks: ERJ , EWZ , PBR

Daniel Pereira


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