The shell game: Brazil’s stock market betting on wild

By Matt Cole in Tokyo

Brazil – the city most likely to scare foreigners on a hot summer’s day – is on a trajectory to do just that. The roulette wheel of its economy is spinning wildly as if, for the first time in the nation’s history, it is creating a bonanza that will hit – or on many occasions, hit very hard – the bank accounts of the bilionaire investor class who set it alight. First, there were the sharemarket boom years at the end of the 1990s when the government locked up export credits, lapped up export revenue, often by issuing new shares in state-run companies like the giant oil giant Petrobras and banks – and where the banker banks are still jiggling that money around in order to hold themselves out to investors. Now there is the gamble being taken by President Michel Temer, the unlikeliest of populist rising stars on the global political scene. It has almost everyone wondering – can he survive? New highs Before that fateful moment when the banks hold stock and everybody rushes to the stock market, a company forked out 230bn reais (£61.3m/45.3bn euro) for a 17% stake in the bank Santander Brasil. That may not sound like much, but it was a record high share purchase for Brazil. Brazilian companies are usually very prudent in their share purchases, preferring to sit on their cash until they see better conditions in the economy. There have always been plenty of richly-rewarded stockholders in Brazil, many of them asset-backed hedge funds, who, when everything is running well, can even ride them out the worst. But for outsiders, this one has turned pretty scary. Back in September, a reporter from Fairfax Media Group, of Australia, found himself almost bedazzled by the huge amounts of wealth poured into Brazil, as Brazilians fed so much cash into the stock market they had pushed it to new heights. Australian pension funds, spending heavily to raise assets to make them as appealing to ageing people as US and UK ones, may feel good knowing that they are helping to keep a booming country powered – but it does raise the hackles of other nations about the importance of super-wealth. The return of the business elite Brazil has seen the return of the business elite. After the 1990s, when the Brazilian elite simply refused to invest in the economy, they were virtually taken away from Brazil. There is no doubt they are back. Rio Tinto was once a hive of passion and global ambition, and now has such leaders as BHP Billiton’s Japex unit, whose business is to sell steam power to iron ore-mining plants that the mining giant wants to open up. Rio is jockeying for position in the newly growing electric car market. A bigger slice of an economy in search of a broad-based growth strategy has in turn spurred an exuberant gambling frenzy on the stock market, requiring – even by the standards of the South American bourse – a certain rambunctious playfulness. The bubble is old enough that there is a risk of a crash now, and a lot of people are actually worried. Rio Tinto said last week that global miners are all being squeezed by an over-supply of raw materials, a possible signal that this is the last era in which Rio can depend on the prices of iron ore and coal to sustain it. The experience of struggling steelmaker ArcelorMittal tells the same story. Its shares have just begun to recover after a terrible 2016, which left some in Brazil thinking the company was doomed to perish. But if another crisis were to hit, there will be billions to be made in selling an investment bank, which is now the darling of Brazilian investors. Chile’s champions were also among the first to miss out on the bull run, and that reflects better the fact that Brazil is pretty darn open to trade and investment from its neighbours, outside the South American Union. Argentina is exporting up to $4bn a month in poultry to Brazil – which is a lot when you consider that the Argentine economy is suffering from recession and is generating very little in the way of tax revenue to buy back government bonds. Loading This year’s southern hemisphere Fifa World Cup, which Brazil was hosting, had an impact. But you can’t really see it so clearly because there are so many other faces on the screens, different corners of the world – and like many figures, this one was now being pulled and pushed from all around the world.

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