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Brazilian stock market feel the pain of global stress scenario

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Ibovespa, Brazil’s benchmark stock index, on Monday picked up where it had left off on Friday — going down amid a scenario of global stress, investors see an increased risk of a deep global recession.

By mid-afternoon, the index had dipped by approximately 2 percent. Outside Brazil, Asian, European, and North American indexes are all having a troubled day — albeit not as bad as the Ibovespa performance.

“International markets remain jittery as central banks across the globe raise interest rates,” Mário Sérgio Lima, an analyst at Medley Global Advisors, tells The Brazilian Report. “In a general way, I would say this is a week in which investors are going to be more cautious.”

The US Federal Reserve’s determination to put a lid on inflation is inflicting a lot of pain on countries around the world. The Pound Sterling today hit a record low against the greenback as investors reacted poorly to Britain’s largest package of tax cuts in 50 years.

The Brazilian Real is also losing value, plummeting by almost 3 percent on Monday so far. The foreign exchange rate reached USD 1 : BRL 5.40 — the highest since late July. “Global factors help maintain a feeling of risk aversion that affects emerging markets,” Mr. Lima explains. Among a basket of 33 currencies, the Real was the worst-performing of the day.

As we showed in our latest Brazil Weekly newsletter, presidential elections tend to cause less volatility than they are reputed for. Perhaps the adage relating to stock markets to the election comes from the nosedive that happened in 2002, when investors were afraid of a win by Luiz Inácio Lula da Silva.

Twenty years later, Lula is again poised to win the presidency — but this time around, market woes are not on him.

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