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Brazil's Stock Market Flips "Market Fundamentals" on Their Head

The Bovespa soars 41% in a year DESPITE a Biblical-sized bearish backdrop

by Nico Isaac
Updated: June 09, 2017

There's a great Portuguese expression meaning to give up or retire -- "pendurar as chuteiras" or "hang up your football boots."

Dear mainstream financial wisdom, it's time hang up your football boots! Your day in the sun is over, as made abundantly clear by the recent performance of Brazil's Bovespa stock index.

You say that, basically, "good news is bullish for stock prices, and bad news is bearish." You've been saying this since mankind invented stock and mercantile exchanges hundreds of years ago. But if this simple wisdom were true -- if you were right, that is -- then how on earth do you explain the Bovespa's 41% rally between February 2016 and February 2017?

Because, here's the thing: The news coming out of Brazil in early 2016 was bad, as in Biblically bad. Remember the "10 calamities" in Exodus? Brazil nearly had them all --

Political "boils": Scandal-ridden President Dilma Rousseff was forced out of office in February and eventually impeached in August

Blood in the OIL: Operation Car Wash revealed corruption and illegal kickbacks among top executives in Brazil's largest state-owned oil company Petrobras

Thunderstorms of public unrest: In March, over three million people took to the streets of Brazil in the largest-ever anti-government protest in the nation's history

Plague of credit downgrades: In February, Standard & Poor's, Fitch and Moody's all slashed Brazil's credit rating to junk status

Diseased waterways: One month before hosting the 2016 Summer Olympics, Rio de Janeiro's acting governor asked for a $900 million emergency bailout to clean the toxic Guanabara Bay and rescue the city from "financial disaster"

Epidemic spread by mosquitoes: In 2016, Brazil was identified as the "epicenter" of the Zika virus pandemic

Crime and lawlessness: Soaring crime rates "made Brazil the deadliest place in the world outside Syria." (March 28, 2016 NPR)

Economic darkness: Worst deficit since 2001 and worst recession since 1901

Financial weakness: From 2010 to January 2016, Brazil's Bovespa plummeted 50% to circle its lowest level in eight years

By all fundamental accounts, Brazil's stock market had nowhere to go but down, as these news items from February 2016 make plain:

  • "The path forward in Brazil looks dismal." (Feb. 25 Bloomberg)
  • "Brazil's Equity Market: Still Without a Pulse" (Feb. 5 Financial Times)
  • "We are already so weak and without hope that this can be interpreted as just one more arrow in St. Sebastian's body." (Feb. 24 The Guardian)

And yet, in late February 2016, the Bovespa hit bottom and began to soar. Over the next year, Brazil's stock market rallied 41% to a five-year high, becoming one of the world's best-performing markets of 2016 before tapering off in February 2017.

As they say in Portuguese, "Que isso!?", or "What the heck?!?"

Allow our February 2016 Asian-Pacific Financial Forecast to answer. There, amidst one of the most dismal climates in Brazil's history, editor Mark Galasiewski did the unthinkable: He published a "cautiously bullish" outlook on Brazilian stocks, writing:

"It looks like the Bovespa Index may have completed a double zigzag at its January low. So far, no near-term momentum divergence has appeared to add to the evidence for a low, in contrast to the MSCI Emerging Markets Index. However, some corrections bottom at the same time that momentum does. And, on a longer-term basis, momentum has fallen almost as low as it did at the Bovespa's lows of 2008, 2011, and 2013.

"We should see the [Bovespa] index begin an uptrend."

(Editor's note: Up arrow added for emphasis)

A Completed Double Zigzag?

Here, the next chart from our June 2017 Asian-Pacific Financial Forecast captures the world-topping performance of Brazil's Bovespa Index, which increased 41% in nominal terms and 60% in U.S. dollar terms into February 2017 to become the "emerging market darling of Wall Street." (Feb 13, 2017 Forbes)

CNI Brazil Industrial Confidence General Index

Whether Brazil's stock market is set to keep rising, well -- now may be the time to retire your old way of seeing market behavior and embrace the new, independent perspective of Elliott wave analysis and the June 2017 Asian-Pacific Financial Forecast.

Get ahead of the trends in Asia with Asian-Pacific Financial Forecast

The Asian-Pacific Financial Forecast provides the world’s most forward-thinking big-picture perspective of Asian-Pacific markets. Editor Mark Galasiewski understands the vitality of Asian, Indian and Australian markets and gives you the analysis you need to keep your finger on the pulse of one of the most exciting regions on the globe.

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