Recent turmoil in the Brazilian stock market has increased the pessimism around its economy and its society and reflects the bad situation the biggest Latin-American economy is dealing with.
The corruption issues in which many politicians are involved at the Petrobras-gate, combined with just 7% of Dilma Rousseff´s popularity, contributes to making the situation even worsens and it doesn’t help to make the country governable. Even Lula Da Silva (Brazilian politician who served as President of Brazil from January 2003 to January 2011) has fallen in disgrace and his popularity has also been damaged and many political analysts say that if he were to ran for president and to compete with the leader of the opposition, he would lose in the first round, which is crazy considering that he left presidency with more than 70% of popularity.
As a result, angered Brazilians have taken to the streets in cities across the country to protest against President Dilma Rousseff, calling for the president’s impeachment.
Inflation above 8% and the economy´s slowdown represents a major problem for the finance minister, Levy, who is leading cut spending programs to reduce the fiscal deficit.
In Argentina we can see the Brazilian slowdown and the impact of the Real's (Brazilian currency) devaluation by walking along the streets in Buenos Aires and comparing the bulk of Brazilian tourism with the one in 2012, and we will see that the Brazilians do not travel as much as they used to a few years ago.
"They are still coming to Buenos Aires but fewer than some years ago”, says the director of a world leading hotel in Buenos Aires.
The stock market has fallen more than 50% in recent years in terms of dollars and the currency has lost more than 57% of its value since 2012, trading now at 3.90 reales from 1.65 traded in 2012. The investors have been taking their money out of Brazil, selling stocks and bonds. The days when the Central Bank of Brazil used to have problems with receiving millions and millions of dollars from international investors are far away in time. “We have made a huge mistake about Brazil” is what the international investors are now saying, almost with tears in their eyes.
Thus, we could say that the conditions are far from being the best to invest in the Brazilian economy and financial market because the actual situation is not good and the projections are even worse. Brazilian investors and the consumers confidence are getting worse about the future.
Last week Standard and Poors downgraded the Brazilian economy (and its debt) from “Investment Grade” (obtained in May 2008) to “Junk.”
Since May 2008, the stock market has tumbled more than 75% and now, after such bear market, Brazil looses the best investment rating. In 2008 investors were desperate to invest in Brazil and emerging markets economies, and since then, the BRICS has been “the stars of the show” (Brazil, Russia, India and China)
Can we say that in 2008 the conditions were given to think that Brazil and other emerging markets economies were a good investment? Brazil took millions of people out of the poverty, its GDP showed a significant growth in the first decade of the 2000´s and its political participation in the world increased. The same happened with other emerging markets
The IMF and also the Investment rating Companies (such as S&P 500, Fitch and Moodys) rated Brazil as the safest markets in the world by saying that it was an Investment Grade, and since then the market has entered a bear market, with a fall 75% of its value. That shows that the rating companies and the investment community made a huge mistake about Brazil and emerging markets and now the same participants are the ones who displease them.
So if they made a big mistake by loving Brazil and BRICS in 2008, are now making another huge mistake by reject Brazil and could this situation represent a major buying opportunity?
The market punishes the consensus and now it is very clear that the consensus about Brazil is negative. The market punished the optimistic view of Brazil in 2008 by entering a bear market and the same market will probably punish the actual pessimism around Brazil by entering a new bull-market in the coming years.
I like a very famous guy in Wall Street called Jim Cramer who finishes his TV program show by saying: “There is always a bull market somewhere”. By considering the actual pessimism and knowing that the market will always punish the investment consensus, is Brazil likely to be the next Bull-market? Probably!