Brazilian equities: hammer time

Investors fled high-risk assets worldwide on Thursday, but they ran screaming from Brazilian equities.

The country’s Bovespa stock index dropped as much as 6 per cent in early afternoon trade to a two-year low – the worst performance among the world’s main equity indices tracked by Bloomberg.

Commodity stocks bore the brunt of the global sell-off on Thursday, hitting Brazil hard as the country’s index is heavily weighted towards natural resource companies such as Vale, the iron ore miner, and oil giant Petrobras.

But Brazilian equities were already in a pretty sorry state before a Japanese currency intervention and eurozone concerns sent global markets into spasm on Thursday.

So far this year, the Bovespa has lost some 23 per cent – about as much as stocks in debt-ridden Greece.

A toxic combination of inflation concerns, which have also lured investors away to Brazil’s high-yielding bonds, and meddling by the government in the management of the country’s biggest companies has turned many investors away.

Haphazard state measures to curb the appreciation of the local currency, the Brazilian real, have also scared off potential buyers.

“When the world has got stomach ache, you’re not going to touch the thing you were already going off,” said Jankiel Santos, the chief economist for Espírito Santo Investment bank in São Paulo.

Granted, the Brazilian real has appreciated about 5 per cent against the dollar this year but that’s hardly much consolation for foreigners who’ve invested in something like steelmaker Gerdau (down 46 per cent this year) or Petrobras (down 23 per cent).

In fact, you don’t even have to look at the numbers. You know it’s been a bad day when analysts resort to their favourite go-to phrase for ‘everything sucks’:

“It’s a perfect storm,” said Nick Chamie of RBC Capital Markets. “Global equity markets sold sharply, commodities are correcting 2-4 per cent, growth expectations are being ratcheted down globally, US dollar is rallying and undermining cheap financing.”

After today, Brazil’s stock market will be even cheaper than before but you’ll definitely need a strong stomach for it.