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 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.
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: