By JAKE KEAVENY
SAO PAULO -- Brazil just passed a milestone on the road to recovery: For
first time since the nation devalued its currency in January, the Bovespa stock
index crossed into positive territory -- measured not in Brazilian real, but in dollars.
The odometer clicked over as the benchmark for Latin America's largest
market surged more than 1,200 points last week, or almost 13 percent. Interest
rates fell, and money poured in.
The Bovespa has now done in two months what the Russian RTS Index hasn't
done in six, or the Thai SET Index in 20: It has more than compensated investors
based in dollars for a plunge in the local currency.
Folks who bought the 56 stocks in the Bovespa on Jan. 1 are now up a little
than 4 percent in dollar terms, even though the real has lost about a third of its
value. The speed of the recovery bodes well for Brazil, Latin America and the
world's emerging markets.
``Brazil is everything,'' said Fred Searby, a Latin-stock analyst at SG
has held the region back thus far, and it is the key to recovery.''
Few people say Brazil is free and clear. The nation's economy is likely
to shrink by
about 4 percent this year. On top of that, a weaker real is likely to spur inflation,
which may reach an annual rate of about 23 percent, economists say.
Past the worst?
Yet the stock-market rally in Sao Paulo suggests few people think Brazil
the type of economic collapse that hit Russia or Indonesia. Stocks are saying
Brazil, the largest economy in the Latin America, is probably past the worst, even
if the pain lingers for a while.
What sparked the rally? The appointment of Arminio Fraga as the nation's
bank chief in February has fueled confidence that Brazil will put its finances in
order and head off runaway inflation. Fraga used to manage money for George
Soros, and many on Wall Street see him as one of their own.
A new agreement on a credit line from the International Monetary only added
investors' optimism. Then last week, a government report showed inflation slowed
in the 30 days ended March 15, raising hope that prices won't spiral out of
control, as some investors first feared. The real gained 3 percent against the dollar
last week. A dollar now fetches about 1.85 real, down from about 2.15 early this
Some analysts are already drawing comparisons between Brazil and South
another nation that turned to the IMF for emergency credit, slid into recession --
and witnessed a big rally in its stock market along the way.
Korea, which asked for the IMF's help in December 1997, is still struggling
banking industry saddled with bad debts. While evidence of an economic recovery
is mounting, the rebound could still be fragile.
Korean stocks, though, see a recovery coming: The Korea Composite Index
surged almost 100 percent last year.
``Brazil could be the Korea of 1999,'' said Jay Pelosky, an emerging-market
strategist at Morgan Stanley Dean Witter & Co. ``At the beginning of last year,
Korea was feared; at the end, it was loved.''
That view is borne out by the scale of last week's rally Brazil. At $346
daily trading topped the three-month average by about a fifth.
For the week, only eight of the Bovespa's 56 members fell. The index has
nearly 60 percent in reais this year, a gain only topped by the Russian benchmark.
Utilities such as Centrais Eletricas Brasileiras SA, or Eletrobas, rose
percent last week. Light Participacoes SA went from 1.45 reais to 18.02 reais --
before regulators suspended the stock and said they would investigate.
Like the Dow Jones Industrial Average, the Bovespa topped 10,000, closing
Friday at 10,825.01.
No high-water mark
For Brazil, though, this is no high-water mark: The Bovespa traded at these
as recently as last August, before Russia defaulted on debt and sent the world's
emerging markets tumbling. In between, the Brazilian index twice plunged below
Next to many other emerging markets, Brazil now looks like a star. The
for example, is down about 54 percent in dollar terms more than 18 months after
Thailand let its currency, the baht, slide.
Looking back, many investors say they were prepared for Brazil to devalue
real, and anticipated the move by driving down the Bovespa about 38 percent in
1998. Few people said that when Thailand bowed to market pressure in July
``Brazil's was the most advertised devaluation in the world,'' said Shirish
who manages emerging markets investments at Strong Capital Management. The
question now is whether Brazilian markets, in pointing to recovery, are practicing
truth in advertising this time around.
Copyright © 1999 The Miami Herald