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Brazil markets: Watching for a red horse

In recent years, Brazil has endured famine, flood and pestilence. What’s next?


“One of them is lying.” This was a Brazilian banker’s summary of the discrepancy between the Brazil’s stock market and its currency. “The question is, which is it?”

Is the Bovespa – trading at record highs – an accurate picture of the country’s financial health? Or is it the currency that is the real indicator – languishing as it is north of $5.50 – a warning that the share prices have dislocated from their economic fundamentals?

Perhaps the country’s deeply real negative interest rates – inflation is over 5% and the Selic is just 2.75% – might be the biggest fraud, artificially pushing stocks higher and the real lower.

This banker inevitably went on to talk about Brazil’s gushing pipeline of equity issuance – R$100 billion is poised to be issued in the country.

Unless something happens to make markets snap shut soon, 2021 will be another record year – showing that companies are rushing to make hay while the sun shines.

So far, investors remain hungry, though there are early signs of flagging appetite as they demand discounts to participate in the latest wave of IPOs. The proportion of deals that are closing below the bookrunners’ pricing range is rising.


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