Another Major Setback For Brazil

Image source:

What's going on?

Andre Esteves, the head of Brazils largest investment bank (BTG), was arrested on Wednesday in conjunction with the wide-ranging Petrobras scandalthat has rocked Brazil (see below for explanation). The Brazilian stock market was down almost 5% (in US dollar terms) and BTG stock fell 40%.

What does this mean?

About 18 months ago, news broke that executives at Petrobras (Brazils huge state-controlled oil company) were collaborating with government officials and others to, effectively, steal money from the company. The scale of the corruption was shocking: it went to the highest echelons of political power and involved huge sums of money. It has resulted in political deadlock as the President (who was the chairperson of Petrobras at the time of the scandal) has, so far, clung precariously to power. Brazil is already suffering through a massive recession. This latest news marks a new chapter in the saga and brings the formerly well-respected BTG and, perhaps, other banks into the fray. The potential for an even bigger fallout for Brazil as a whole was evident in the broader decline of Brazilian stocks and its currency on Wednesday.

Why should I care?

  1. For markets: Brazil is in a really tough spot and this news didnt help. Its economy is expected to shrink 3% this year. Its political leadership has been compromised when the country needs it the most. Sometimes situations like this create superb investment opportunities, but its likely that a lot of dust has to settle before such opportunities become clear.
  2. The bigger picture: Brazil is a prime example of how Chinas slowdown is killing some emerging market economies. Brazil boomed during the early 2000s as it sold commodities like iron ore to China. Now that Chinas economy is slowing down, the world is left with an oversupply of commodities and countries like Brazil are reeling.
Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over one million Finimizers

Read next

Middleweight Chip Champion Awes Investors

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.