Brazil is crashing after President Dilma Rousseff beat challenger Aecio Neves over the weekend.
Now Rousseff has four more years to turn the Brazilian ship around. The once-booming country is experiencing high inflation, thin corporate margins, and low growth. Stocks are crashing now because Wall Street was hoping the center-right Neves would win the election and become the man to take on this task.
It’s a tough task already, and it’s getting only tougher as global market conditions continue to fall out of Brazil’s favour — especially when it comes to the country’s big commodities exports like steel.
“What we’re seeing on the ground is a significant reduction in confidence domestically within China as it pertains to building and construction, which is where a lot of steel goes,” Paul O’Malley, CEO of the $US3 billion international steel company Bluescope, told the Australian Financial Review. “Yes there is still growth [which] may well return, but at the moment, the heyday is over.”
Brazil needs this moment of limited demand to end now, but China’s slowdown isn’t ending anytime soon. Global demand isn’t changing. Hedge fund manager Paul Tudor Jones, who recently spoke at the Robin Hood Investor Conference, said he thought commodities would suffer from limited demand until 2020.
Now this isn’t anything new, but it seems as if Monday has been a gut-check day for Brazilian investors. Those who were hoping for the quick confidence jolt of a Neves win were disappointed, and it’s showing in stocks like Vale.
Vale is the $US54 billion Brazilian iron ore producer — the world’s largest. And yes, the company has been trading at five-year lows because of a supply glut.
On Monday, the stock was down 6%.