Brazil Bovespa Tumbles to a 4-year Low

ibovespaBovespa Tumbles 4.24%

Dear PGM Capital Blog readers,

On Tuesday, July 2nd 2013, the Brazilian BOVESPA-5o, Index, tumbled 2000.64 point or 4.24% to close at a 4-year low of 45,228.95 points, after weak industrial output data darkened the outlook for Latin America’s largest economy, as can be seen from below chart.

Bovespa July 2 2013

Highlights:

  • Shares of mining firm Vale SA, (NYSE: VALE) led losses, sinking 4.3 percent.
  • Petrobras, (NYSE: PBR), fell 3.61 percent to close at s 7-year  low of USD 12.81 a share.
  • The Brazilian Real fell 0.69% against the USD to close at BRL 1:00 = USD 0.4454.

 

Comments:

Today’s further decline of the Brazilian BOVESPA, proves our point, that Investors have lost their confidence in the economic policy of Brazil current government, led by the populist president, Ms. Dilma Rouseff.

History has proven that populist, short-term thinking leaders and government, will not be able to create and maintain a sustainable economic growth for their country. It is a pity to see how Brazil has returned to a slow and flat growth country with high inflation and a devaluating currency.

Due to this we maintain our Hold to Sell rating on almost all Brazilian stocks with the exception of Companhia de Bebidas Das Americas (AMBEV), NYSE: ABV and BRF SA, NYSE: BRFS, for which we have respectively a BUY and STRONG BUY rating.

If the current Brazilian government doesn’t change course and start thinking long-term, by investing in education, ICT infrastructure etc., it will see other South American countries – like Chili, Colombia, Peru, and Uruguay – with visionary and long-term thinking leadership, continue to accelerate growth, control inflation and increase the value of their currency, while Brazil, on the other hand, will continue to experience a stagnating economy with high inflation and social unrest.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that securities of emerging market countries as well as their currency be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek

 

 

 

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