Brazil Is A Whipsaw
Lets run through the numbers:
- The Brazil ETF, the MSCI Brazil Capped (EWZ) is down 4.4%.
- The iBovespa, the country's stock market, is down 3%.
- Vale, the country's massive steelmaker, is down 3%
- and worst of all, Petrobras, the quasi-state oil and gas company, is down over 6%.
Petrobras is weighted in the Brazil ETF. It's a massive company. As economist Dr. Claudio Loser of research firm Centennial Group once told Business Insider:
"A few years ago I said this was the best run oil company in Latin America, but it has collapsed under the political pressure of the government. They're wasting a great opportunity in the way they're managing their oil resources. I'm not saying 'as goes Petrobras there goes Brazil' but it is very very important."
On Wednesday the country's finance minister said that despite the fact that global oil prices are super low right now, Petrobras still may have to raise fuel prices this year.
That announcement came after the company took center stage in the Brazilian Presidential debate between incumbent Dilma Rousseff and Aecio Neves Tuesday night. Neves brought up the company's current corruption scandal. Rousseff's party, the long-ruling Brazilian Workers Party (PT), is accused of skimming $0.03 off the top of every Petrobras dollar.
Despite that, Rousseff gave a good showing at the debate by all accounts. You can see that in the market's response.
For the last month Brazil has gone up or down based on Rousseff's success or lack thereof. The market wants her out. It wants to see expensive social programs cut. It wants to see tighter interest rates.
And Neves is offering that. He has said he wants to tighten monetary policy, reform Brazil's tax system, cut government programs and encourage investment. The market loves this.
So today, the market is unhappy. Brazil is a whipsaw. Be careful out there.