Brazil Stocks Sink in 2021 12% for First Annual Drop Since 2015

The nation’s benchmark Ibovespa equity index closed the year 12% lower

Visitors in front of an electronic board displaying stock activity at the Brasil Bolsa Balcao (B3) stock exchange in Sao Paulo.
January 01, 2022 | 11:25 AM
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Bloomberg — Brazilian stocks ended 2021 in the red, halting a five-year streak of annual gains.

The nation’s benchmark Ibovespa equity index closed the year 12% lower, stung by rising interest rates, anticipation of weaker economic growth and political turmoil, a combination that turned the stock gauge into the world’s second-worst performing national equity index this year.

Retailers Magazine Luiza SA, Via SA and Americanas SA were Ibovespa’s laggards this year, amid fierce competition and an increasingly adverse macroeconomic backdrop. Latin America’s largest economy is set for a slowdown next year, with growth expected to moderate to below 1% as policy makers lift the key Selic rate toward double-digit levels to tame inflation.

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“Growth is clearly slowing driven partly by much higher inflation and central bank rates, as well as the political uncertainty,” said Will Pruett, a Boston-based money manager who oversees about $8 billion at Fidelity Investments.

With valuations near the lowest levels in over a decade, some believe a decent chunk of bad news is already factored in. The Ibovespa, down 20% from its June peak, is trading at about 7.8 times forward earnings, versus its 10-year average of 11.7 times. The index looks attractive even when commodity giants Vale SA and Petroleo Brasileiro SA -- which account for a heavy weighting on the stock gauge -- are excluded, according to Banco BTG Pactual.

Read More: Investors See Bumpy Path to Brazil Rebound as Election Nears

“Although 2022 will undeniably be a more volatile year, given current valuation levels we see room for Brazilian equities to do well,” according to BTG Pactual strategists led by Carlos Sequeira.

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Still, strategists expect any rebound to be bumpy, especially ahead of a divisive presidential election and given ongoing uncertainty on whether the country will be able to resume its stalled reform agenda.

“Brazil will continue to face challenging fiscal dynamics and we expect this dynamic to remain in 2023, no matter who wins the election,” said Ed Kuczma, who manages $1.2 billion in Latin American equities for BlackRock Inc.