IBOVESPA Trading Halted for Second Time in Three Days, Continues Downtrend

RIO DE JANEIRO, BRAZIL – The IBOVESPA, the Brazilian stock market’s leading indicator, closed down 7.64 percent to 85,171.13 points on Wednesday, March 11th. The financial market experienced another panic day after the World Health Organization (WHO) declared a coronavirus pandemic (Covid-2019).

In Brazil, the circuit breaker – a mechanism that interrupts trading for half an hour when the IBOVESPA reaches a ten percent drop – was triggered for the second time in three days. The index dropped 12.38 percent to reach the daily minimum.

In relation to the index’s historical high of 119,593 points, reached on January 24th this year, the IBOVESPA has now accumulated a drop of 28.78 percent – which, technically speaking, shows a downtrend, i.e. “bear market”.

“The scenario has changed. After 25 years in the market, I had never seen a circuit breaker day in, day out”, commented Pablo Spyer, Mirae Asset’s operations director.

The downward trend began right in the first deal of the day but worsened after WHO declared a pandemic. According to Spyer, the news published by Reuters that the United States will keep meetings about the coronavirus secret also helped increase risk aversion.

Investors are also aware of the potential impact of the coronavirus crisis on banks, with news on the radar that the Deutsche Bank has delayed payment of US$1.25 billion in bonds. “There is concern about credit risk,” commented Eduardo Guimarães, an analyst at the Levante Analysts. The shareholders also reflected the news that a Taji Iraqi military base, which houses American soldiers, was attacked by ten rockets on Wednesday.

According to Bloomberg, the president of the European Central Bank (ECB), Christine Lagarde, said on Wednesday that Europe “will see a scenario that will reminisce for many the Great Financial Crisis of 2008”. On Thursday, March 12th, the ECB will define the future of monetary policy in the Eurozone.

Among stocks In the IBOVESPA list, GOL and Azul shares plummeted more than 14 percent amid concerns that the advance of the coronavirus will decrease the flow of travel. The CVC tourism agency’s shares also suffered strong losses, retreating 13.33 percent.

However, Petrobrás’ stock ultimately pushed the index down. Pressed by the conflict between Saudi Arabia and Russia over oil production, Petrobras’ common and preferred stock fell 12.53 and 10.59 percent, respectively.

“People sell because the price is dropping, not based on fundamentals,” explains Adriano Cantreva, a partner at Portofino Investments. It’s almost a vicious cycle: “the more it drops, the more sellers emerge”. Despite the sharp drop in stock prices, many experts have recommended keeping calm and not selling assets at just any price.

“The market is in panic. It’s a turbulent week in history. My recommendation is to stay calm so as not to fall into the herd effect. The guideline is not to get rid of stocks. If there are people selling it’s because there are people taking advantage and buying”, explains Bruno Madruga, in charge of Monte Bravo’s variable income area.

“Now it’s time to buy rather than sell shares. To make a loss at this moment to preserve capital is a mistake. The Brazilians are still very used to fixed income and have little experience in stocks,” says Julio Erse, management director at Constância Investments. According to him, the markets will only calm down after governments begin to announce effective incentives.

Domestic market

The external picture is the main factor of volatility, but the domestic market also helps. “There is still nothing tangible about the reforms, which adds a degree of uncertainty to the chaos we are experiencing,” comments Ilan Arbertman, an analyst at Ativa Investments.

On Monday, March 9th, the Minister of Economy, Paulo Guedes, said that the administrative reform bill will be submitted to Congress “as soon as possible”.

Source: Exame