Brazil is booming, but you wouldn’t think so from looking at the stock market, says Craig Mellow in Barron’s. Annual GDP growth is running at 3%, double what was expected at the start of the year. But the Ibovespa share index is down more than 3% in 2024. What’s the problem? Financiers don’t trust Luiz Inácio Lula da Silva, the leftwing president. He has so far managed to increase welfare spending “without bursting Brazil’s macroeconomic seams”. But in a country where “past fiscal sins” leave the state shelling out 30% of revenue on debt service costs, market paranoia is understandable.
The central bank doesn’t seem to trust Lula either – it has raised interest rates to ward off rising inflation. Tighter credit is proving a headwind for local stock prices. Some assets do now “look oversold”, but the “mood in the market is pretty horrible”, says Thierry Larose of Vontobel Asset Management.
The Brazilian currency has fallen close to record lows against the dollar since the US election, say Michael Pooler and Joseph Cotterill in the Financial Times. Down almost a fifth against the greenback this year, the real is the world’s third worst-performing major currency in 2024. At 78.5%, the debt-to-GDP ratio is elevated for an emerging economy and risks reaching “unsustainable levels”. The finance ministry is promising spending cuts.
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Is Lula to blame for Brazil's underperforming stock market?
It’s not all Lula’s fault, says The Economist. Brazil is one of the few countries to allow MPs to co-draft the budget with the government. Designed to build coalitions in a fractured Congress, the rules result in vast “pork-barrel” spending, with MPs scrapping over funds for new roads or schools in their constituencies. There are few controls, so the process is open to corruption. The powers of “machine” politicians in Congress are only growing, so “Lula’s job is not about to get any easier”.
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