Brazilian Market Soars Despite Contracting Economy

Brazil´s financial markets are soaring to record highs even though its economy contracted at an annual rate of -1.2% in the third quarter, its weakest performance in four years. This month, the Bovespa stock index and Brazilian sovereign bond prices hit all-time highs, and the real currency has gained 20% against the US dollar to its strongest level in 4-1/2 years. Markets often rise during hard times and ahead of growth spurts. Yet in the case of Brazil, the Bovespa stock index is 23% higher in 2005, shrugging off the central bank´s 18% overnight loan rate, after reaching a high as 19.75% in September. The sky high interest rates would have crushed more powerful G-7 economies. But Brazilian equity markets are more focused on record low bond yields and record high commodity prices, that are boosting the fortunes of listed exporters.

Brazil Bovespa

Editor's note: US investors can access the Brazilian market via ETF EWZ and CEF BZF