Brazil, Latin America’s largest economy and one of the emerging markets of the BRICS countries, was downgraded by the US rating agency Standard & Poor’s (or S&P) to junk status on September 9, 2015. The impact rippled through Brazil’s stock markets on September 10. The iShares MSCI Brazil Capped ETF (EWZ) fell by 1.45% on the day.
The graph below shows the price movement of EWZ since June 1, 2015.
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EWZ’s slide results from a variety of factors. Standard & Poor’s lowered its outlook for the country from stable to lower medium grade on July 28, raising alarms regarding the country’s credit risk profile.
Further, S&P’s rating downgrade for Brazil from BBB- to BB+ relegated the country to junk investment status, citing the country’s economic recession.
Brazil is currently facing a variety of issues:
All these factors have created economic turmoil in the country, and Brazil has slid into recession. The stocks of the companies from the basic material sector like Petrobras (PBR.A), Petroleo Brasileiro Petrobras SA (PBR), and Ultrapar Holdings (UGP) were hurt on September 10, 2015, following S&P’s downgrade. Stocks like Branco Bradesco (BBD) and Itau Unibanco Holding (ITUB), which are foreign regional banks, also fell the same day.
In the next part, let’s analyze the effect of Brazil’s downgrade on other major companies in Latin America’s largest country.