Brazil had the world’s worst-performing stock market last year, and it didn’t start off 2016 much better. But the country’s stock market troubles go back even further. Since the start of 2011 Brazilian stocks have lost 70% of their value, compared to a 27% loss for emerging markets overall and a gain of more than 25% for stocks globally. Will Brazil bounce back any time soon?
The country’s financial struggles are due to a combination of long-term problems and recent developments. High inflation and low worker productivity have been persistent headaches for the Brazilian economy. Over the past five years it’s been further hurt by the decline in commodity prices, which has accelerated since the middle of 2014. And Brazil has struggled with pervasive corruption, which last year enveloped Petrobras, its most prominent company.
Politics haven’t helped as the government has been riven by debates about whether President Dilma Rousseff should be impeached. And the agglomeration of man-made woes was supplemented by a natural one when the country become the epicenter of an outbreak of the mosquito-borne Zika virus.
Given all these misfortunes, why would anyone invest in Brazil? It’s certainly possible that its stock market could continue to fall, especially if China’s economy slows more than expected. But with so many factors having seemingly conspired to hurt the country it wouldn’t take much to improve the situation.
Until a bounce this past week Brazilian stocks were more than 10% below their financial crisis nadir, suggesting that stock prices already incorporate a fairly dire outlook for the future. A rebound in commodity prices, better economic policies, or even a successful impeachment of President Rousseff could all potentially trigger a turnaround. And if none of those come to pass, there’s still a chance that the attention lavished on the country during the upcoming Olympic Games in Rio de Janeiro could do the trick.