Latin American nations overall seem to have done a serviceable job of protecting their underlying economies from the massive volatility of the global markets, though the potential damage of slowing growth in developing nations has been priced into the indexes. Latin American economies appear to be on track for a healthy year but a person wouldn’t know it looking at the recent performance of the Brazilian economy.
Brazil, the largest economy in the region, experienced record growth for several years, but after losing more than 18 percent in 2011, there are doubts that it could experience a full recovery with the overarching woes facing the globe. Losses from emerging market ETFs with holdings in Brazil have cause reticence among investors considering re-entering the market.
Frederick Searby and Francisco Shumacher of Deutsche Bank (DB) wrote in a recent note that the nation has “arguably the most room to cut rates,” suggesting this factor makes it among the best options for an investment. Still, unsure of how European debt contagion and ongoing weakness in Japan will affect a burgeoning stock market, investors have been treading lightly
The Ibovespa or the Brazilian index rallied somewhat on the strength of the underlying economy at the start of the year, busting through a 60,000-point barrier, but fell lower after releases of economic data from the Eurozone indicated that growth in the region is braking. Statistics from Germany indicated that the fourth largest economy contracted by 0.25 percent in the final quarter of last year while industrial output in Spain sunk by 7 percent for the month of November from a year earlier period.
The U.S. “beige books”, an announcement on the state of the U.S. economy by the Federal Reserve, is also being anxiously awaited by investors in the Ibovespa. Some fear that problems in housing will thwart a recovery. The contractions throughout Europe and potentially the U.S. are sounding alarm as the agricultural and oil-based economy of Brazil would be negatively impacted by weakening demand. If commodities experience a decline in demand, the prices will fall and the huge number of public companies that specialize in trading products created from the commodities will generate less revenue.
The Ibovespa fell over 17 percent in 2011, but is currently up over 5 percent on a year-to-date basis. Some of the largest companies making up the index include Petrobras (PETR3.SA), Embraer SA (EMBR3.SA), and Vale SA (VALE5.SA).