There's an area of nervousness surrounding the direction of the Bovespa. After the phenomenal run-up in 2009 when dollar-based investors gained close to 150%, last year maked a significant slow down with dollar returns of some 5%. This year, the Bovespa index is down in dollar and local currency terms.
What happened? There's been a rapid convergence in expectations for growth between the developed world, particularly the US, and Brazil. . In January, the IMF predicted 2.4% GDP growth for the US versus 3.7% for Brazil. That compares to GDP growth of 7.5% for Brazil in 2009. Inflation is riding at more than 6% in Brazil. And the government is having to embark on a painful clamp down after a spending splurge in 2010. Interest rates are up, reserve requirements have been tightened to slow bank lending and the budget has been very lightly trimmed.
That has investors worrying about the durability of the economic and consumer story that has been such a driver for investments. Bank stocks, consumer and real estate stocks are all down with darlings of the market such as Natura and Lojas Renner, taking a very well-needed breather.
The markets are running to catch up with lowered expectations. Bankers are reporting difficulties in selling IPOs and the off-shore (and domestic) hedge fund industry are seeing outflows after a very strong 2009-10. The Bovespa market is heading into some choppy water.