Instability in China worsening risk perception of Brazil

The Brazil tends to be seen as a risky country.
25/08/2015 11h23 - Updated 25/08/2015 11h23
Photo: Paulo Whitaker/Reuters

The turbulence that echoed the Chinese stock market to the world this week signaled that Brazil could suffer more than anticipated with the slowdown of the Asian country. Brazil would be affected not only because China uses less force and the fall in raw material prices. Brazil also tend to be seen as a riskier country.

Economist Jose Julio Senna, Head of Monetary Studies Center of the Brazilian Institute of Economics (Hand) the Getulio Vargas Foundation (FGV), It explains how the infection tends to occur. “In this Monday, it became clear that the slowdown in China increases the bad mood in relation to all emerging, and Brazil, which has the economy in recession and the fragile political, It will be viewed with more suspicion yet”, says.

Senna has been following the Dollar Index (indicator that measures the dollar's performance against various currencies), the Brazil risk and the variation of the real. Throughout last year and the first quarter of this year, there was no clear trend between them. “But, from 17 July, when the mayor announces the break with the government, we began to suffer from the political environment: the Brazil risk rose and the dollar accompanied”, says Senna. “The slowdown in China aggravates the picture.”

The market signaled that shares this perception. The protection against any Brazilian contracts default, os credit default swap (CDS), reached on Monday, the highest level since 2009, following the global aversion to risk moving. The five-year CDS hit Brazil 370 basis points, the highest level since 13 March 2009.

But the Ibovespa, main stock index, closed on Monday to drop 3,03%, the lowest in more than six years, influenced by the wave of panic that dominated global markets on fears linked to the slowdown of the Chinese economy. The trading volume totaled 7,3 billion reais. On Tuesday, However, Ibovespa reacted, e, around 10:40 rose 1,83%, to 45.149 points.

Another factor of concern is the price of raw materials, which tends to be affected in different ways. “Brazil and China adopting models came almost opposite growth: no Brasil, prevailed consumption as motor, in China, investment; China now turns to consumption”, reminds Raul Velloso, expert on public accounts accompanying the international scene to measure the impact on the local economy.


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