São Paulo – The São Paulo Stock Exchange (Bovespa, in the Portuguese acronym) closed on a sharp down note this Monday (8th). It was the first day of trading after risk rating agency Standard & Poor’s downgraded the United States’ debt rating. Ibovespa, the main Brazilian stock market index, dropped by 8.08%, to reach 48,668 points.
It was the highest drop since 2008, when the world was shaken by the United States mortgage crisis. Throughout the day, the Ibovespa dropped by as much as 9.73%, following the trend of the leading stock exchanges worldwide. The Dow Jones index, of the New York Stock Exchange, closed down 5.55%. The London Stock Exchange’s FTSE 100 ended the day on a drop of 3.39%.
To economists heard by Agência Brasil, however, the Brazilian bourse’s reaction to the news of the fiscal situation of the US and Europe was “exaggerated.” They believe that the sharp decline has “emotional” causes and should therefore be reversed.
“The decline witnessed today was more emotional than it was rational,” said Keyler Carvalho Rocha, a professor at the School of Economics, Administration and Accounting of the University of São Paulo (FEA-USP). “The market will tend to recover.”
According to the professor, the economic scenario in countries such as Greece, Italy and Portugal is delicate. The terms of the agreement to raise the United States debt ceiling were also less than ideal. These, nevertheless, do not justify such a pronounced drop in the Ibovespa. “Petrobras’ stock dropped by roughly 30% this year, but the company is healthy, posting profits,” the professor explained. “The price is unreal. It should go up in the long run.”
Alcides Leite, a professor at Trevisan Business School, also believes that the Ibovespa decline today was “exaggerated” and bears a “strong emotional component.” According to him, however, there is no telling whether an even sharper decline may still take place, or when will a bullish trend be recorded again. Still, he acknowledged that the lowering of the US’ debt rating “was historical” and that “the repercussion of this event on the market is strong.”
In this situation, Leite advises patience to those who have funds invested in stock. To those who have cash available and are considering investing to earn profits in the long run, Leite stated that the stock exchange is a good choice. “Investing is recommended to those who can wait at least two years.”
The decline in stock exchanges around the world has also impacted on the exchange rate. The commercial dollar exchange rate increased by 1.96%, at 1.61 real per dollar. The euro exchange rate increased by 2.35%, at 2.30 real per euro.
*Translated by Gabriel Pomerancblum
