Bovespa Plunges, Seen Hitting New Lows

Brazil’s Bovespa closed at a startling 35,069 points Wednesday, down 10.18% at its lowest point since September 2006. The close was only slightly above the low of the day at 35,027, adding negative technical pressure. The Dow Jones meanwhile fell 5.7% amid mounting fears of global recession. The Bovespa’s fall could well continue, as LatAm equity generally overshoots developed world stock pain. “It could easily fall below 35,000 and keep moving lower,” says a secondary equity market executive at a Brazilian sellside shop. “If you’re a fundamental investor, it would be very difficult to lose money in the long term [if you bought now,] but right now we’re seeing a technical selloff that is completely price insensitive.” The Bovespa has fallen 39% since August 1. Recently a number of strategists have noted the Brazilian market is technically oversold and should eventually rebound, though they have stopped short of calling a bottom. The BRL fell 7.8% Wednesday, bringing its accumulated drop since August 1 to 50%. Mexico’s bolsa fared little much better Wednesday, sliding 7.0% to 18,787. The drop since August 1 has been 30% while the MXP has weakened 32%. Meanwhile, EM debt sold-off aggressively, with JPMorgan’s EMBIG sliding 6.0% and spreads ballooning 102bp to 816bp. “Argentina’s USD bonds, now trading at 1,905bp plunged 15.0% on the day, extending year-to-date losses to 67.4%; EM bellwether Brazil also posted substantial declines (-8.8%) with spreads widening a massive 138bp to 670bp,” says JPMorgan.