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Brazil Downgraded to Junk, EWZ Falls by 1.45%

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Part 2
Brazil Downgraded to Junk, EWZ Falls by 1.45% PART 2 OF 2

Petrobras Stumbles on September 10 as EWZ Heads South

Stocks at the rock bottom

Petrobras (PBR.A) was the biggest loser of the day, falling 6.80% on September 10. It was followed by Petroleo Brasileiro Petrobras SA (PBR), which fell by 4.72% on the same day.

An energy sector giant, Petrobras engages in oil and gas drilling, as well as exploration. It constitutes 90% of Brazil’s oil production. The company is at the epicenter of Brazil’s corruption scandal, which was revealed in 2014.

Petrobras Stumbles on September 10 as EWZ Heads South

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Since then, Petrobras has been under a cloud of controversy, identified as a factor in the country’s downgrade. Both PBR-A and PBR traded below their respective 100-day, 50-day, and 20-day moving averages on September 10. They are trading below their respective averages since August 18, 2015, depicting a downtrend trend in their price movement. The trading volume for PBR-A rose from 38,706,300 to 62,858,700 with an implied volatility of 65.5. The iShares MSCI Brazil Capped ETF (EWZ) fell by 1.45 % on September 10.

The graph below shows the stock price movement from August 3–September 10.

Chain reaction

Joining these stocks at the bottom is Companhia de Saneamento Basico do Estado de Sao Paulo (SBS), which is part of the utility sector. SBS yielded -4.14% on September 10. As we saw in Part 1 of this series, the stocks of Branco Bradesco (BBD) and Itau Unibanco Holding (ITUB) of the foreign regional banks slid by -3.29% and -3.25%, respectively.

BBD and ITUB both traded below their respective 100-day, 50-day, and 20-day moving averages on September 10, suggesting a downward trend of the stocks’ movement. The stocks were volatile, with an implied volatility of 39 and 39.1, respectively. Both stocks are rated as “stable” by Moody’s, and Standard & Poor’s rated them as BB-.

However, Banco Santander (BSBR), another foreign regional bank, returned 0.54% on the day. The stocks at the top that yielded a positive return on September 10 were Gerdau (GGB) and Vale (VALE) from the metals and minerals industry. They returned 5.49% and 4.01%, respectively.

For further detail on Brazil’s economy, please refer to Is Brazil’s economy as strong as its soccer team?

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