Brazil’s economy has been displaying strong performance, with a 2.5% year-over-year GDP growth in the first quarter, surpassing expectations. Quarterly growth reached 0.8%, and the unemployment rate dropped to 7.5%. Despite these positive indicators, Brazil’s main stock index, the Ibovespa, hit its lowest level this year.
The rise of the dollar against the real and the underperformance of the Ibovespa can be attributed to various factors such as the U.S. Federal Reserve’s monetary policy and fiscal concerns in Brazil. The changing interest rate scenario in the U.S. has led to a global liquidity drain, impacting Brazil’s stock market.
Investors are also worried about Brazil’s fiscal health after the government revised its budget surplus target. Additionally, the Central Bank’s divided vote on interest rate cuts and the anticipation of a more lenient stance on inflation have added to investor anxiety.
As a result, local investors are shifting towards fixed income investments, leading to a decline in individual participation in the stock market. Understanding these factors helps explain why strong economic data has not translated into stock market gains in Brazil.