The Brazilian stock market (Bovespa) does not stop to astonish.

From January 2016 to mid-November 2017 it marked:

– + 74% of the value expressed in real

– + 99% in euros

– + 116% in dollars

That is, who had invested US$ 10,000 in the Brazilian stock exchange in January 2016 today would find, gross of the various commissions and taxes, a pretty bargain of 21,6 thousand dollars.

This spectacular performance is the result of two concomitant factors:

– the growth of Bovespa

– revaluation of the real

Indeed, thanks to the revaluation of the real in the period, if those US$ 10,000 had simply changed into reais and kept under the mattress, they would now amount to US$ 12,390: in any case a good 23.9% gain.

ibovespa eng 2017

In mid-September 2017, the Bovespa Index (Ibovespa) surpassed for the first time the highest historic reached  in May 2008, at 73.5 thousand points. The new maximum closing level is October 12, 2017, with 76,989 points.

I remember that the value of the basket of shares that makes up Ibovespa is strongly concentrated on some blue chips that are very sensitive to political events and the change of macroeconomic factors:

Itau (Itausa and Itau/Unibanco): 14.23% of the index

Petrobras (ON and PN): 11.45%

Bradesco (ON and PN): 9.90%

Wave (ON and PN): 5.80%


Two years of growth

Started in 2016 around 42,000 points, very low value due to the economic and political crisis exploded in 2015, Ibovespa hit the minimum of the year in mid-January (about 37,000 points), with the concomitant fall in the price of oil ( which brought Petrobras shares worth less than R$ 5.00) and the sharpening of the political / institutional crisis.

With the great demonstrations against the government and with the strengthening of Dilma’s impeachment hypothesis, in March 2016 Ibovespa exceeded the threshold of 50,000 points.

From July 2016, with Temer set up for two months and with the first budget maneuvers aimed at containing the growing public deficit, Ibovespa has returned to growth and has reached 60,000 points.

The growth of the Brazilian stock index continued to run until May 2017 (66,684 points on day 16) when the JBS / Joesley Batista scandal exploded. Within a few hours Ibovespa lost 10% of its value (19% in dollars, considering the concomitant devaluation of the Brazilian currency).

From that moment, a constant price recovery began, supported by filing denunciations against President Temer. Real had also partially picked up from the chaos of the JBS scandal, giving Ibovespa exceptional performance both in dollars and euros, at least until mid-September 2017.

Over the past two months, political uncertainties and difficulties in approving pension reform have led to a correction of stock prices and a slight devaluation of the currency, without however affecting significantly the strong gains of the last two years.

Despite the fact that international rating agencies have long configured investments in Brazil as a speculative degree, the decline in the perception of “Brazil risk” has stimulated investors’ appetite, especially at a time of great liquidity in international markets.


What to expect from the Brazilian stock exchange in the coming months?

Looking at the dizzying growth of the stock market over the last two years, the most immediate (and conservative) reaction is to advise caution. Nevertheless, the achievements in the last few weeks have not turned into a bearish trend; foreign investors continue to bet on the growth of the Brazilian stock market.

In specialized forums, many Brazilian traders using technical analysis to predict the future performance of the stocks are unable to explain the persistence of this bullish trend. After losing potential gains by achieving “stop gains” on shares that have grown up yet, these analysts are waiting for a price correction that over time may prove to be increasingly severe. According to these analysts, or the technical analysis has stopped running or we are approaching a “big crash”.

On the other hand, for some operators using the fundamental analysis, in 2018 Bovespa could reach 85/88 thousand points, supported by a recovery in business activity and a growing profitability of businesses.

But what can we expect in the coming months?

the Temer government, despite its very low popularity, is doing its job of “ferrying” Brazil to the presidential election. The disastrous state of public accounts requires reforms that the government does not have the political force to accomplish in full, but that is, however, continuing for a partial approval at least. And the markets are rewarding this effort, though it is the fruit of a political mediation aimed at maintaining political balances (read: “keeping the armchairs” in the next legislature).

the Brazilian economy has already started towards a slow recovery. Inflation under control and declining interest rates are creating the basis for sustainable growth, even though there is still a great public debt deficit and a very low level of investment.

the “presidential race” is still in a very preliminary stage, with some unfeasible candidates (Lula and Bolsonaro in particular) and other expressions of a political class that doesn’t represent the Brazilian society anymore. In the coming months, when it will become clearer who will be the true contenders, it will be possible to outline the alternative scenarios even at the economic level. The only truly catastrophic scenario would be the return of the proponents to the “new economic matrix”, followers of Dilma and Lula.

– on the international side, this period of high liquidity and relative stability of markets favors Brazil. Keeping in mind China’s growth rate, a major buyer of Brazilian commodities, and US expansionist fiscal policy, which could induce the Fed to accelerate rising interest rates.

Note: Those who are interested in the historical trend of Bovespa daily stock quotes, real / euro exchange rates and real / dollar exchange rates over the past two years can receive it free of charge in excel format, requesting it at: