Global investors are selling off Brazilian equities Monday morning, after Dilma Rousseff was narrowly re-elected as the country’s president Sunday.
Hoping for a win from pro-business candidate Aecio Neves, markets are expressing their disappointment. Brazil’s Ibovespa, the main index of stocks, fell by more than 6% as Brazilian markets opened.
That’s just adding to the pain around the world. In Frankfurt, the part-nationalized Brazilian energy giant Petroleo Brasileiro was down 14.56%.
And in Paris, the Lyxor ETF Brazil, an exchange traded fund that tracks the country’s Ibovespa index of equities, was down 10.77%.
It’s the same story across the world. The main ETF tracking Brazil in Japan opened down more than 7%.
And according to Andres Abadia at Pantheon Macroeconomics, it’s likely to get worse before it gets better:
Over the last four years, the Ibovespa has fallen close to a third, and it is down slightly this year-to-date. The real has weakened 33% since Ms. Rousseff took power, and markets — correctly, in our view — see few signs of hope for a turnaround. We doubt Ms. Rousseff will begin the significant shift to a more market-oriented economy that the country needs. The economy will continue in its slow growth, high inflation, mode for the foreseeable future. We therefore expect markets to remain under pressure.
The Brazilian currency, the real, is down another 2.99% against the dollar today, back below $US0.40. It’s dropped by about 12% since the beginning of December, and has been declining for years: