Brazil Bovespa Nearly Suspends Trading

By Brennan Stark, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Following the recent retreat of the United States’ AAA credit rating and amidst sharp fears of a recession, São Paulo based stock index Bovespa’s sank so low by Monday, August 8th, that investors across Brazil expected the impending trigger of Bovespa’s “circuit breaker.” The circuit breaker is a practice which suspends all trading if the market falls ten percent or more, and with plunges as deep as 9.75 percent by mid-afternoon, the trigger certainly seemed imminent.

Closing the day down 8.1 percent, all 66 stocks on Bovespa’s index plunged on Monday to their lowest levels since April 2009. Brazilian oil giant Petrobras expressed concern that its investment plan to sell stakes in its own companies would be deeply affected by the global slowdown, CEO Jose Sergio Gabrielli informed on Monday.

Even amidst the worst of the crisis on Monday, however, many financial experts within Brazil remained optimistic. Newton Marques, a former analyst at the Central Bank and currently a professor at the University of Brasilia, believes that Brazil’s strong domestic market will save the country as the rest of the world sinks into global economic problems, much as it did during the international crisis of 2008.

Marques cites an adjusted financial system and “international reserves of US$300 billion,” vast “room for agricultural expansion,” and “income distribution programs that are increasing the salary mass,” which all contribute to the expansion of the domestic market, as reasons to believe in the Brazilian economy once again.

President Rousseff as well has moved to quell fears of the crisis. Brazilian newspaper giant O Globo reported on Tuesday that Rousseff claimed Brazil is more prepared to face the current crisis than it was in 2008, both “in financial terms and on account of market opportunities.”

Citing the 2008 recession, Rousseff reminded that Brazil was one of the last countries to enter the 2008 recession and “one of the first to leave it.” Echoing Marques’ position, Rousseff stated that “the assertion of our internal market,” and opportunities created within Brazil itself, while still “obviously aiming to export” should become Brazil’s primary focus for the moment.

Marques and Rousseff’s reassurances and predictions, if correct, will certainly see Brazil through the coming months. On a more immediate note, by Tuesday the Bovespa stock index had advanced dramatically, rallying from its 27-month low-point as Brazil marked the cheapest valuations since early 2009.

Bovespa had climbed 2.6 percent as of 3:07 New York time, and 46 stocks reported gains while only nineteen declined, and the real strengthened again by 0.1 percent to 1.6249 to the US dollar. According to Bloomberg.com, traders moved R$9.64 billion in stocks in São Paulo, compared to the daily 2011 average (data compiled through August 3rd) of R$6.36 billion.

Despite the sudden progress, some advise not to get too excited just yet. Finance Minister Guido Mantega is wary of exaggerating the reaction of the stock markets on Tuesday, claiming the stock market is up simply “because it had dropped dramatically” on Tuesday, and that only time will tell what will truly become of the global situation.