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In Brazil Stocks Drop Sharply While Dollar Zooms Up

São Paulo, Brazil's stock market, the Bovespa The dollar shot up 3.27% this Thursday, July 26, in Brazil, closing at 1.928 in relation to the real. This was the American currency's biggest value since May of last year. The sudden and brisk surge is being attributed by analysts to investors getting bearish on their riskier stocks and taking their money elsewhere. This is a phenomenon occurring all over the world right now.

When any factor stirs investors fear, as it happened this Thursday, they react running from emerging markets like Brazil and taking their money to investments they consider more secure, like US government securities.

The Ibovespa, the São Paulo stock exchange index, fell sharply declining more than 6% during yesterday's trading session and closing 3,57% down at the end of the day. This Thursday's slump was enough to wipe out the 7% in gains the Bovespa had brought this July.

The explanation for this market malaise is the world's concern with a possible crisis in the United Sates, which would reduce the amount of money circulating through the international finance markets.

6.3 billion reais (US$ 3.4 billion) in shares changed hands, well above the year's daily average of 4.1 billion reais (US$ 2.2 billion). Yesterday's result was the year's third worst drop for the Brazilian financial market.

On July 24, the Ibovespa had fallen 3.86% also in response to the American economy. The largest drop, of 6.62%, happened on February 27, in this case in reaction to a big slump at Shanghai's stock market, which reverberated throughout the world.

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  • Show Comments (19)

  • Luiz Domingos

    Exchange Foreign U.S. Dollar
    I live in Brazil I had receiving benefit U.S. Dollar falling exchange foreign R$ 1,675 today up date 3/12/2008, since 2003 R$ 3,68 lost U.S. Dollar I am very shamed buyed new car. bovespa very large problem.

  • João da Silva

    You’re all wrong
    [quote]You can bet the REAL will gain bigtime when all hell breaks loose between IRAN and the USA and petroleum goes to $250 or more a barrel… [/quote]

    A wishful thinking on your part.But there again, I do believe in freedom of Thoughts,Speach and Action.Good luck with your investments.

  • Youre all wrong….

    You’re all wrong
    The REAL truth is…the dollar is falling because America is just about to jump into a war it cannot win, which will destroy America’s economy, cause it to become totally introspective, alienate it from the rest of the world, and cause a nearly complete collapse of the dollar worldwide.

    And big money everywhere knows it!

    Brazil’s short fall was simply a ridiculously shortsighted reaction to loss of confidence in something that has nothing to do with anything of any longterm import. Brazil is self-sufficient in fuel, food, industry, education, natural resources, electric power generation, construction and many other areas. Most important of all, it is not threatened by 50 Islamic nations, nor a multi-trillion dollar debt threat!

    You can bet the REAL will gain bigtime when all hell breaks loose between IRAN and the USA and petroleum goes to $250 or more a barrel…

  • The Crazy Canuck

    Gone with the Wind
    Hello All from Canada.
    Since the news article was about the drop in the Brazilian stock market, I just thought I’d explain what caused it since I don’t see any hint of that in the posts so far. The drop in the Brazilian stock market was entirely in response to a drop in the American Stock market, and that in turn was caused by uncertainty over something called “subprime mortgages”.
    You see, in America over the past 3 or 4 years, some idiots decided there was good money to be made in lending money to people with blemished credit histories. The thinking was that since the economy was so much better than it was 10 years ago, people’s poor credit history was really a reflection of the high unemployment at the time, and not their unreliability as lenders. So, since these people are now gainfully employed, and every indication is that they will stay that way, they deserved another chance at home ownership. The mortgages were called “subprime” because the clients borrowing the money were “sub prime”, not because the money was borrowed at a rate below the prime lending rate. Actually, these people paid interest rates a few percent higher than borrowers with good credit histores paid. The problem was that the people selling these “subprime mortgages” got paid a commission, so they sold as many as they could. Since the price of houses was going up sharply in many cities in America, people bought houses with no intention of keeping them. They just wanted to hold them for a year or two while the price of houses went up, and then sell them at a profit. Also, (in some cases, not all) people were able to obtain mortgages for large amounts of money by simply STATING what their income was. (There was no follow up checking to see if they had told the truth.) So, people working as waiters decided they were going to gamble on the hot housing market by buying a home they couldn’t afford, paying the mortgage on it for a year or two, and then “flipping” or selling it at a profit.

    The problem is twofold: The housing market in the US has gone from boom to bust, and many people who bought homes with the intention of “flipping” them are now having to pay a mortgage on a house price they can’t get anymore. If they wanted to sell their house, they’d have to sell it for a lot less than they own on their mortgage, so the bank would take the entire selling price and they’d still be in debt to the bank for the balance.

    How big is the problem? Well, in 2006, it’s estimated that approximately 20 percent of mortgages were “subprime”. As the morgages purchased in 2006 and 2007 come up for renewal, there’s expected to be more and more financial institutions go bankrupt in the US because of these subprime mortgages. And, really, the problem is that no one really knows how much of an impact it’s going to have on the US economy. So, it’s another Y2K. People are worried because no one really knows how big the problem is or how much of an impact it’s going to have.

    And, in the face of uncertainty, people tend to pull their money out of the stock market (which could go down) and put it into secure investments, like bonds.

    So, in a nutshell, the drop in the Bovespa had absolutely nothing to do with Brazil. Similarily, a similar drop in the Canadian stock exchange was simply panic driven because the American and Canadian economies are woven inextricably together. When the Dow goes up, so does the TSE (and the Bovespa). When the Dow goes down, so does the TSE and the Bovespa. We in it together on both sides of the ride.

    Anyhow, I believe that most of the problem is that no one really knows FOR SURE what’s going to happen, so it’s Y2K all over again. I think that the bottom line is that some financial institutions are gonna go bankrupt, but that things will gradually return to normal over the next few weeks. Brazil, like Canada, is not directly affected by these subprime mortgages. However, if it means a slowing of the American economy, it means less exports from both Canada and Brazil to the US, and that in turn means a slowing of the Canadian and Brazilian economies. But, I don’t believe it’ll come to that. It’s the uncertainty that’s got everyone worried, just like with Y2K.

  • ch.c.

    continued…..
    …who bets than within the next 10 years, many developing countries will have dollarized (pegged), once more, their own currencies ??????

    I am quite sure of it.
    And I am quite sure that you will (de)peg it….ONCE MORE….just a few years later…as usual !!!!

    Laugh….laugh…laugh…laugh…laugh !!!!!!

  • ch.c.

    to doggydaddy…on Brazil incoming tourism !
    You said it all. Not as rosy as your government propaganda articles wish your citizens to swallow.

    You also know or should know, that Brazil tourism account is in annual deficit for the past several years. Meaning Brazilians tourists spend more outside Brazil, than foreigners spend in Brazil.

    You probably know too that for world tourists, the Brazilian price/quality service is quite deceptive….compared (of course) to other
    developing countries.
    And this has nothing to do with the exchange rate simply because ALL World developing nations currencies (except 2 : Argentina and Venezuela) went up sharply against the US$. Meaning that everyone has the same problem as yours.

    Interesting to note how Brazil is gazing on their exports surpluses and on their current account surplus….berfore interests.
    The sad reality is :
    – to show some big growth in your exports, you show your stats in US$ but in Brazilian currency you have far far far less growth.
    – your current account (that includes financial movements such as tourism etc etc) on the surface is positive to the tune of around 4 % of GDP….BUT before interests. That is a shortsighted view. Because by having the World highest interests rate after inflation, your true (net) current account is in DEFICIT to the tune of around 4 %. Not any better than the USA, give or take a little. But the developing world is criticing the USA while not being any better. Worse yet, Americans are right to critizice their trade deficit but is is quite laughable to read foreigners, mostly from developing nations, to do so. Reality being HOW COULD DEVELOPING NATIONS HAVE TRADE SURPLUSES….IF THE USA CHOSES NOT TO HAVE A TRADE DEFICIT….EXCEPT FOR OIL ???????

    That is a several hundreds billion US$ question that no developing nation has never answered yet !

    In my view, the developing nations should be grateful to the USA and prey that Americans dont change their mind.
    Therefore your harsh critics against the UISA…is more than risky, in my view.
    But in the meantime developing nations are receiving more and more dollars……losing more and more of its value.
    Strangely enough Brazil is even buying the US$ on a daily basis, despite it loses value almost on a daily basis for the past several years.

    America, exactly as they wanted, is laughing looooouuuuddddddd, you fell in their trap.
    You want a higher dollar? Just buy more of it and support it….by yourself ! They will print as many as you wish provided they can still
    control their own inflation rate.

    Conclusion : at this chessgame the winner is not the one you think……long term !!!!!!!

  • ch.c.

    “the fundamentals that determined its values are still in place: price earning ratios;”
    Price earnings ratios also show…..THE TRUST….people have…IN THE FUTURE…of a company.
    Therefore yesss you are right for the VALUE, but you are only HALF right !

  • Magnus Brasil

    [quote]They cheat, lie and hide……AND you applaude them ![/quote]

    You who, cara pÀƒ¡lida?

  • João da Silva

    Ch.c
    [quote]You see I haver been fair, I dont want you to compare with the EU, USA and Japan !!!!!! [/quote]

    Who said you havent been fair? Very consistant and coherent in your views AND KEEP POSTING.I AM ALL EARS.

  • João da Silva

    Ch.C
    [quote]They cheat, lie and hide……AND you applaude them !
    [/quote]

    Not me,my friend. Do you really think that I would applaude them? A bunch of commies and opportunists. I hope that when the shit hits the fan, you Swiss dont give them asylum.
    [quote]On Henrique Meirelles…..not Mirelles as you wrote…….[/quote]

    Thanks for your spelling correction!. He was the exec of Bank of Boston, wasnt he? Enlighten me,please.

  • ch.c.

    “what do you expect of your friends Lula,Pires and Mirelles?
    They all are taking you for a ride-
    They cheat, lie and hide……AND you applaude them !
    Brazilians are certainly the most masochists on earth.

    Despite 17 interests cuts, Brazil still has the world highest interests rates……after inflation…. on earth ! You applaude !
    But not so great in my view.

    Brazil has now an inflation rate of around 3-3,5 %, but Brazilians individuals must borrow at well over 50 %, which go even to over 100 % for overdrafts !!!!! You applaude !
    In Brazil when you buy something, you pay for 2 or 3, depending of the length of the borrowing. And you applaude.

    Conclusion : you are either idiots, or stupid, or ignorants, or brainwashed. But masochists you are for sure since you continue to applaude and re-elect the same type of politicians who have cheated on you….time and again !

    Why dont you compare things with similar developing countries such as Chile, Argentina, Mexico , Thailand, China, $outh Korea, Taiwan, singapore, Hong Kong (China but still different), Russia and many Eastern Europeans Countries ?
    You see I haver been fair, I dont want you to compare with the EU, USA and Japan !!!!!!
    On the inflation front, except for Argentina, Brazil has not done a better job than the other countries.
    But look at the borrowing costs in those countries, and Brazil is at the queue….Once More.
    Same for the annual economic growth rate ! Brazil has lagged the above countries by many many percentage points if you add up the last 5 years…since Lula has been elected President ! But you applaude….while being at the bottom !

    Who else than an idiot or masochist would do that ??????

    As to Pires, if you recall, I was certainly the first one, even before your medias, who has critized him right after the first plane crash.
    But Gone Now !!!!!! Hey Hey !!!!!!
    On Henrique Meirelles…..not Mirelles as you wrote…….he is doing a great job……. for your wealthy minority. They dont even need to take investments risks…by having the government paying them the world highest rates…..after inflation !
    On Lula……the more he cheats on you and the more you love him ! As someone said, Lula talks to the left but work for the right !
    And on all his promises made since he was elected, he delivered only 1 : reduced inflation. But failed and cheated on the others tens and tens !!!!

    Wake up and stand up !

  • João da Silva

    Ch.c
    [quoteThis was the American currency’s biggest ONE DAY MOVE since May of last year ?????? ][/quote]

    Ok, you win. I give up. I thought the dollar was going to go up.My expectations lasted forless than 24 hours 🙁

    There again, what do you expect of your friends Lula,Pires and Mirelles?

  • João da Silva

    Doggydaddy
    [quote]Ola Joao…Aerolinas Argentinas has direct flights from Floripa to BA. Cheers Mate [/quote]

    Mate,thanks for clarifying that BA is Buenos Aires!. I thought BA was Bahia and wondering which airlines was going to route me to U.S. or Europe from Floripa through Salvador!!

    btw,does Aerolineas still have that flight from BA to Auckland over the South Pole? Must check,but if you know the info, pass it on to me please.

  • ch.c.

    This was the American currency’s biggest VALUE since May of last year ??????.
    This was the American currency’s biggest ONE DAY MOVE since May of last year ??????

    But mixing up everything is a Brazilian TRADITION !!!!!.

  • doggydaddy

    Para Joao
    Ola Joao…Aerolinas Argentinas has direct flights from Floripa to BA. Cheers Mate

  • João da Silva

    doggydaddy
    [quote]It is now more feasable to fly to BA from Floripa and then to the USa or Europe than trying to connect through SP.
    [/quote]

    If that is the case, you better give me the name of your Travel Agency. We might be of some help to lots of people who are “Lost”.

  • aes

    The market was worth 58,000 two days ago, the fundamentals that determined its values are still in place: price earning ratios; billions of dollars in surpluses; strong currency; lowering of interest rates; consumer confidence; burgeoning export market; ethanol and oil market potential. These and other market factors determine the value of the market. Brazil’s market is not dependent upon the U.S. to determine its value.
    Brazil is engaged in numerous globle markets, ie India, China, Africa and the Far East, whose economic relationship exist extant to the U.S. The market is a state of mind. If the Market was worth buying at 58,000 it is certainly worth 54 or 55,000. The drop in currency was a chief complaint of exporters. The return to a 2 to 1 relationship to the dollar can only benefit Brazilian markets. There is no problem with the market. The problem is perception. Bovespa at 54,000 is an opportunity not a problem.

  • doggydaddy

    Tourism
    I am in tourism development and operate high end lodging operations and market to Americans and Europeans so with the fall of the dollar in the last year the value received in the exchange rates by travelers is not as good so I have had to raise my prices to off set the lower movement of occupations. Lower dollar, security and the air crise starting with Varig last year is a disaster for the country. But Marta says she will fix things. She doesn’t have a clue about the sector. What did she do when she was mayor in Sao Paulo for tourism? Did she ever demand of the federal sector to fix the mess at Congonhas, which has been brewing for years now. No… Not a peep. Many of my sector of travellers want value for their money spent and the free flow of making air transfers through SP to the visit other regions of the country. It is now more feasable to fly to BA from Floripa and then to the USa or Europe than trying to connect through SP.

  • dm

    1.84 to 1.92. Even 1.9 levels were not being talked about 6 months back. It was expected to depreciate- but the opposite happened. Btw where is the currency going to stop- is it on its way to 1.70 or back to 2.10-2.15 by the end of the year. If we look at the last 6 years, It has already erased all the gains it made over this period. DO not businessman working in Brazil find it difficult to handle? I am sure it is badly affecting the auto, textiles/apparels, furniture, shoes sector…..Any views?

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