The Brazilian stock exchange (Bovespa) is experiencing a very special moment, pending the outcome of the October presidential elections.
After reaching the all-time high on 26/2/2018, at 87.652 points, it has been oscillating for a couple of months between 75 and 80 thousand points.
From January 2017 to the end of September 2018, it has marked:
– +33% of the value expressed in reais
– -4% in euros
– +8% in dollars
It is clear that the strong devaluation of the real, of which I wrote in a post last June, has influenced the performance of the Brazilian stock exchange. In the case of the euro, the excellent result in reais was canceled by the devaluation of the currency, leading the investment even into negative territory. The dollar performance was less negative, with a gain of 8% over the period considered.
That is, those who had invested 10 thousand dollars in the Brazilian stock exchange in January 2017 today would find themselves, gross of the various commissions and taxes, about 10800 dollars. Not a very good investment, if you think for example at the Dow Jones index, which in the same period has guaranteed a gain of 33.2%.
I remember that the value of the basket of shares that constitutes the Ibovespa is strongly concentrated on some blue chips very sensitive to political events and to the change of macroeconomic factors:
Itau (Itausa and ItauUnibanco): 14.23% of the index
Petrobras (ON and PN): 11.45%
Bradesco (ON and PN): 9.90%
Vale (ON and PN): 5.80%
However, three years of growth
The first few months of 2018 were extremely positive for the Brazilian stock market, with a positive macroeconomic situation and a recovery in the climate of trust between businesses and consumers.
Then the bad weather arrived: the truckers’ strike showed the weakness of the Temer government and its ability to continue on the path of reforms, strongly reshaping the 2018 GDP growth forecasts. Adding this factor to the start of the electoral campaign and with tensions on the international markets (the Turkish lira crisis and the US / China trade war), the Bovespa index slipped to 70,000 points.
At this moment Ibovespa is about 77 thousand points.
What to expect from the Brazilian stock exchange in the coming months?
I decided to write this post before the first round of the presidential elections, because it is now clear that Bolsonaro and Haddad will probably go to the ballot. So the next president of Brazil will be an unprepared (euphemism …) fascist without parliamentary force or the “puppet” of Lula, representative of a party that, in addition to transforming corruption into a political method, has brought Brazil to its knees causing the worst economic crisis in its history.
Neither of the two candidates has (until now) assumed the commitment to maintain the balance of public accounts and to carry forward the reforms (pensions, tax and political) of which Brazil urgently needs. Surely, during the campaign for the ballot, the two candidates will review the most extremist positions to conquer the moderate electorate, but still remain many unknowns about the economic policy of the next government. From this point of view, we could have a lot of “saudade” of the so mistreated Government Temer, which – with all its limitations – has ferried Brazil out of the crisis.
This amazing premise to say basically this: investing right now is very risky, despite the value of Brazilian assets valued in dollars or euros are very attractive. Both for the Bovespa and for the real, there are very fluctuating weeks, perhaps even moments of panic.
Better to wait for the election of the new president and understand what future awaits this beautiful country, Brazil.
Note: those interested in the historical trend of the daily quotations of the Bovespa index, real / euro exchange rate and real / dollar exchange rate over the last three years, can receive it for free in excel format by requesting it from: firstname.lastname@example.org