Fear of Chinese crisis causes Ibovespa’s 5th straight drop; lowest last November

RIO DE JANEIRO, BRAZIL – Fears that a default by a prominent Chinese real estate developer will further weaken the global economy caused a new collapse of global stock markets on Monday, with the main index of the Brazilian stock market falling to the worst level in nearly ten months.

Pressured mainly by shares of commodities companies and banks, the Ibovespa fell 2.33% to 108,843 points, with the fifth straight drop taking it to the lowest closing since the 107,378 points on November 23 last year. The financial turnover for the session totaled 34.9 billion reais.

In the coming days, the seemingly inevitable default on interest payments on debt by the giant Evergrande has revived fears of a crisis in the Chinese real estate sector, which would bring large-scale consequences for the local and global economies.

One of the segments that last week already reflected the dimension of the potential damage, the iron ore market, saw another 8% drop in the commodity’s price, accumulating a 55% drop in just two months.

Here, shares of Vale and steel mills were among the most significant casualties. The drop in the price of oil also put pressure on Petrobras. “Brazil suffers a lot since two of the main Ibovespa stocks are directly affected by commodities,” said Filipe Fradinho, analyst at Clear Corretora.

According to market professionals, this is combined with other factors that have already made investors avoid higher-risk assets, such as signs of more significant monetary tightening to contain inflation.

Two of these signals should come on Wednesday. In the United States, signals are expected from a Federal Reserve committee to reduce bond purchases. This program has helped provide liquidity to the market and assist in recovering the economy hit by the effects of the Covid-19 pandemic.

The major indexes S&P 500, Dow Jones, and Nasdaq, were down 1.8% to 2.2% on Wall Street yesterday.

Also, on Wednesday, the Central Bank’s Policy Committee in Brazil is expected to raise the benchmark interest rate again by one percentage point, to 6.25% a year, and to indicate further increases until the end of the year to try to contain inflation.

HIGHLIGHTS

Vale (VALE3) fell 3%. Last Friday, UBS cut the company’s stock recommendation from ‘buy’ to ‘sell’, estimating that an iron ore surplus of about 150 million tons should grow in 2022.

Petrobras (PETR4) lost 1.12%, on the back of falling international oil barrel prices. Petrorio (PRIO3) retreated 5.68%. Braskem (BRKM5) had the worst performance of the index, plummeting 11.54%, amid media reports that Novonor (former Odebrecht) intends to sell a stake in the company through a stock offering.

Bradesco (BBDC4) retreated 3.75%, leading the losses among large Brazilian banks. Itaú Unibanco (ITUB4) dropped 2.26%. Banco Inter (BIDI11) declined 5.23%, with investors preferring to sell shares that have appreciated sharply in recent months to pocket gains.

Copel (CPLE11) rose 4.68%, one of the few upsides of the index. The Paraná state power company informed on Friday that it will distribute R$1.437 billion in remuneration to shareholders, to be paid on November 30.