Coronavirus ‘pandemic’ slams Brazil markets, stocks sink as much as 12%

Coronavirus ‘pandemic’ slams Brazil markets, stocks sink as much as 12%

By Jamie McGeever

BRASILIA (Reuters) – Brazilian markets fell sharply on Wednesday, with stocks down 12% and the real sliding back toward its all-time low against the dollar after the World Health Organization declared the coronavirus outbreak a global pandemic.

Reflecting the scale of investors’ risk aversion, longer term market-based interest rates surged, implying the central bank will eventually be forced to jack up interest rates to protect the currency and maintain capital inflows from abroad.

Stock market trading was suspended for 30 minutes in the afternoon after a 10% fall on the benchmark Bovespa index (BVSP) triggered an automatic “circuit breaker”.

The selloff intensified after trading resumed, pushing the Bovespa down as much as 12% on the day to 81,000 points and bringing its losses so far this year to a whopping 30%.

(Graphic: Brazil stocks – https://fingfx.thomsonreuters.com/gfx/mkt/13/3249/3210/BOVESPA.png)

In dollar terms, the Bovespa is down more than 38% this year, making it by far the worst-performing major equity market in the world.

“Markets are in pain mode,” said a hedge fund manager in Sao Paulo. “The big stress today is in the rates futures curve.”

January 2027 rates futures surged almost 90 basis points . Even shorter-dated contracts like January 2021 expiring when the benchmark Selic rate will likely be lower than it is today, rose around 30 basis points.

The Brazilian real slumped as much as 2% to 4.7579 per dollar (BRBY), within sight of the recent record low of 4.7975 per dollar. One-month implied volatility on the dollar/real exchange rate shot up to 19.7%, the highest since October, 2018 .