Brazilian Markets Not Frightened by Lula’s Victory
The first occasion that Luiz Inácio Lula da Silva (Lula) won the presidency of Brazil in October 2002 set off one of the biggest 'sell the rumor, buy the news' rallies in financial markets ever. From September 2002 to June 2008, the Brazilian equity index (Bovespa - BVSP) rose just over 20 times in US dollar terms - yes, you read that correctly (20x). Brazil did not default on its foreign debt - as many colleagues told me at the time would happen. (In full disclosure, I did not agree as I had just recommended that investors buy Brazilian equities.) By the end of June 2008, supported by the 'opening-up' of China and India, the global economic recovery and, above all, the resultant commodity ‘super-cycle’ of 2003-7, Brazil was briefly the biggest market in the MSCI Emerging Markets equity index with a weight of 17.6%[1]. As so often, however, Brazil flattered to deceive. Since mid-2008, Brazilian assets have had a very difficult time, with the Bovespa falling by 51% in US dollar terms. The familiar comments about Brazil were dusted off in this period: ‘the country of tomorrow and always will be’ and ‘the giant awakens – again’.Now that Lula...
