Crashing Brazilian Real and Bovespa in the Abyss – Chart of the Day

Animals on Brazilian bank notes
  • The Brazilian real crashed this year and was the second worst-performing currency.
  • Also, the Bovespa Brazilian stock market index fell over 32 percent.
  • Brazilian stocks are down 52 percent in dollar terms compared to the end of last year.
  • The compounding effect of the coronavirus, commodity prices, and political issues?

Brazilian Flag



The Brazilian Real Suffered Hard

The U.S. dollar / Argentinian peso jumped 49.3 percent in the last 365 days. The U.S. dollar / Brazilian real 45.9, and the U.S. dollar / South African Rand, 28.5 percent. This is the top list – or bottom list – of the main currencies as of May 11, 2020. The crisis is devaluing the assets of many developing countries to an increased extent. Some days ago, we wrote about 11 Countries with Exceptionally Cheap Stocks, earlier about the Weakest Currencies in 2020 and Severe Consequences. This time, we analyze the Brazilian assets in more detail.

The Brazilian Real, the Brazilian Bovespa Stock Market Index (in Real), a Brazilian Stocks ETF (in USD), and a World Index ETF (in USD). Year-to-date.
The Brazilian Real, the Brazilian Bovespa Stock Market Index (in Real), a Brazilian Stocks ETF (in USD), and a World Index ETF (in USD). Year-to-date. (

The emerging countries usually suffer more from crises than developed ones. Central banks in emerging countries are facing often a double challenge in this period. They should take easing measures (like interest rate cuts) to combat the economic impact of the crisis. This is how they usually stimulate the economy. But they should also defend the falling national currency with monetary tightening (for example, interest hikes). Because in times of crisis, international investors regularly become risk-averse. They sell emerging assets, stocks, currencies more than developed ones. (Emerging markets are more volatile.)

Not Well-Equipped Countries

But the devaluing currency is helping the economy and the balance of payments of the country. So, central banks and politicians tolerate mostly their currency weakening. The weakness increases the competitiveness, and the value of exports, domestic production, and reduces imports. At least this method is included in economic textbooks and the toolbox of economic policymakers.

Brazil seems to be one of the worst crisis candidates at the moment. The coronavirus pandemics hit Brazil very hard, and the falling commodity prices are diminishing the incomes.


EMs best equipped for the crisis will be those with experience or a responsive approach to virus control, strong public health infrastructure, proactive leadership on policy and public health measures, less exposure to low oil prices, as well as long-term focused economic stimulus measures. Some countries, like Indonesia, Brazil, and Mexico, whose leaders were slower to act to prevent the spread of COVID-19, may face longer-term public health and economic damage

– wrote Global X ETFs on SeekingAlpha.


Brazilian Real, Brazilian Reality

Not only the real but the Brazilian Bovespa stock market index was also one of the worst-performing indices globally this year. Falling over 32 percent in the local currency. Because of the two, the Brazilian stocks ETF, EWZ fell over 51 percent this year, calculated in USD terms. That explains also this quote:


When you invest in a foreign country, even via ETFs, you are subject to both market risk and foreign exchange risk (…) I believe that EWZ and any other ETF that track the MSCI Brazil 25/50 index are undervalued (…) feel that this occurred because of the compounding effect of the coronavirus and political issues that occurred at the same time. 



Another interesting reading about the political and economic history of Brazil in the last two years here: Brazil Is Not Delivering On Its Economic Promise.



I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

(Photos: Cover: Animals on Brazilian bank notes.)

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