Daniel Altman – Foreign Policy, 2/25/2014
Less than four months from now, billions of people around the world will focus on Brazil as the World Cup kicks off in São Paulo. But some Brazilians are looking forward with as much trepidation as pride, and not just because of their soccer team’s form in recent tournaments. Under the spotlight, their economy may be revealed as much less than meets the eye.
It’s easy to beat up on Brazil these days. Its currency, the real, has lost more than 15 percent of its value in the past year, as has São Paulo’s stock market, and preparations for the World Cup are not exactly on schedule. But just a few years ago, as the world reeled from economic downturns in Europe and the United States, Brazil was the darling of the financial markets. What happened?
In the years leading up to the financial crisis, Brazil had become an attractive option for investors seeking to balance their portfolios. Stock markets in Europe, the United States, and other established economies track each other so closely as to be almost identical. For example, the DAX index of the Frankfurt Stock Exchange had a correlation of 0.95 with the Standard and Poor’s 500 index on a month-to-month basis between January 2005 and August 2008. By contrast, the correlation between Brazil’s Bovespa stock market index and the S&P 500 was only 0.73. For investors who wanted to insure themselves against dips in the big markets, some of Brazil’s stocks were a reasonable option.
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