IBOVESPA Sees Worst Decline in This Century, Plummeting to 86,000 Points

RIO DE JANEIRO, BRAZIL – The disagreement in the oil production negotiations resulted in one of the largest losses in financial market history. The announcement that Saudi Arabia would lower the price per barrel and increase production led to the commodity’s price collapsing by more than 30 percent on the day. The sharp drop had global consequences.

On Monday, March 9th, markets around the world plummeted. On the B3 exchange, the circuit breaker – a measure that serves as a kind of safety valve – was triggered for the first time since Joesley Day, in 2017. The IBOVESPA slump was sharp, at 12.17 percent, second only to the drop on September 10th, 1998, when the stock market crashed 15.83 percent.

With a 12.17 percent drop this Monday, the main stock market index closed at 86,067 points – the lowest score since December 2018.

“From a fiscal standpoint, the current price of oil is unsustainable for countries that rely on the commodity. Saudi Arabia will not be able to sustain that price for long,” said Jason Vieira, chief economist at Infinity Asset. According to him, an agreement between the producing countries could reduce market instability. Earlier this week, the VIX index, also known as the “fear index” recorded its highest since the 2008 financial crisis.

On the stock market, Petrobras’ shares, representing 9.9 percent of the IBOVESPA basket, pushed the index down the most. With the devaluation of oil as a backdrop, the state-owned company’s ordinary shares dropped 31.34 percent and closed at R$16.52, while the preferred shares fell 32.02 percent to R$15.52. In the session, Petrobras lost R$91 billion in market value.

Until that time, PetroRio, a company in the same sector, had recorded strong appreciation since it implemented its strategy of acquiring operational wells. In 2020, the company’s shares were among the highest in the Small Caps index. But yesterday, it was a different story, as the company’s shares dropped 36.15 percent, ranking among the lowest in the trading session.

Although the companies directly related to oil were more affected on Monday, all commodity companies experienced sharp devaluations. “The collapse of the price of oil affects all commodities and all markets,” said Alvaro Bandeira, chief economist of digital bank Modalmais.

As a result, steel companies were also among the greatest losers in the session, with CSN down 25.29 percent, while Usiminas and Gerdau fell 16.14 and 15.46 percent, respectively. Vale’s shares, on the other hand, were down 15.2 percent on the IBOVESPA.

Given this more adverse scenario, the Central Bank may cut the basic interest rate by 0.50 percentage points in next week’s meeting. Currently, the SELIC stands at 4.25 percent.

Throughout the day, Brazil’s CDS (Credit Default Swap) – which is a type of insurance against countries’ default – rose some 50 points to 193 points. The higher the indicator, the greater the chances that the country will not pay international creditors. This concern has driven the flight of foreign investors, who withdrew approximately R$1 billion in funds on March 5th, driving the March cash flow balance to a negative R$5.7 billion. In the year, net outflows totaled R$45.9 billion.

Abroad, the trend was no different. The London Stock Exchange’s main indicator closed down 7.25 percent, while those in Paris and Frankfurt retreated 8.39 and 7.94 percent, respectively. Madrid and Milan recorded drops of 7.64 and 11.17 percent, respectively.

In the American market, the Dow Jones average ended down 7.7 percent and Nasdaq down 7.209 percent.

Source: Exame