A recent article in the Financial Times' beyond brics section
the end of the era of investor favor showering on the South
American economic titan of Brazil. Bloomberg News
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
There are many reasons to suspect that Brazilian equities (
) 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 (
) and Embraer (