Recession worries in Brazil (EWZ) sent the Brazilian real to a five-year low after poll results showed President Dima Rousseff gaining a lead over candidate Marina Silva, according to Bloomberg. Dropping a couple percent versus the US dollar today, its biggest one-day drop in three years, the Brazilian real has fallen more than 10% during the third quarter. Many had hoped a new government would spur economic growth in the country.
The Brazilian economy is an important one, a component of the faster-growing BRIC nations, and many firms in our coverage universe are dependent on its resilience. This could potentially compound problems in Latin America, with Argentina defaulting on its debt earlier this year. Fundamentals at PetroBras (PBR), Gol Linhas (GOL), Embraer (ERJ), Itau Unibanco (ITUB), Banco Bradesco (BBD), Gafisa (GFA), Brasil Foods (BRFS), Vale (VALE) bear watching closely, as all are very tied to the Brazilian economy. The presidential vote is October 5.
In other news, democratic protests are rocking Hong Kong (EWH). According to reports, protesters and police in Hong Kong have clashed in pro-democracy demonstrations. The unrest has impacted Standard Chartered (SCBFF) and HSBC Holdings (HSBC), which have closed some branches amid the turmoil. According to records, “the closures marked the biggest disruption to banks’ operations in the city since at least the 1970s.” Hong Kong is a significant financial hub, with local and foreign banks having more than 1,370 branches located there. Though the global financial markets continue to operate smoothly, we’ll be watching if further disruptions have a greater impact on equity prices across Asia.
Monday could usher in another down week for the stock markets. As we mentioned in this piece, we could finally be in for a “correction” (a drop of 10% or more). There’s still no reason to panic, in our view. We’re still laser-focused on the goals of the newsletter portfolios.