Brazil's Loss Could Upend Nation's Stock Market And Economy

By Greg Morcroft - Brazil’s shocking World Cup semifinal defeat at the hands of Germany could so sour the country’s mood that it may weaken the national economy and cause stocks there to fall.

That’s the take veteran Brazil-watcher and head of emerging-market strategy at UBS AG, Geoffrey Dennis, gave to Bloomberg News in an interview late Tuesday.

Dennis told the news agency that, “It is such a humiliating defeat that you wonder whether it will have a negative impact on Brazilians’ psyche. It’s going to confirm to the people that ‘Look, our economy is struggling, we cannot get any growth, now we don’t even have a decent football team either.’”

Brazil’s stock market is closed on Wednesday for a regional holiday, but several companies’ shares have versions that trade on U.S. exchanges.

The loss sparked sporadic incidents of vandalism from Sao Paulo, Brazil's second-largest city, and other parts of the country. And, with presidential elections around the corner, the Brazilian team's on-field performance does not bode well for President Dilma Rousseff, who has been a frequent target of the protesters since Brazil announced its plans to host the World Cup. 

Some acts of aggression were more symbolic.  After the loss, disgruntled fans burned a Brazilian flag in São Paulo’s Vila Madalena neighborhood, according to a photo released by Veja. The area is normally visited by celebrating revelers, and the mood remains upbeat even among rival fans. However, last night military police decided to break up the crowds early due to fights that broke out between Argentine and Brazilian fans, according to Folhia.

Tony Volpon, the head of Americas research at Nomura Holdings Inc., told Bloomberg on Tuesday that the loss “is nothing short of a national humiliation. For a country that defines so much of its national character around its footballing prowess, losing at home cannot but have major repercussions beyond the acts of violence seen after the defeat.”

Following Brazil’s debacle, the protests against the Rousseff administration, might witness a rebirth.

If the protests are renewed, it would come as a blow to the beleaguered Rousseff, whose approval rating fell to 48 percent in April from 55 percent in February, according to a poll cited by The Economist.

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Brazil’s market has performed admirably this year, rising 19 percent from its lows in March, according to Bloomberg. However, since she took office in 2011 the nation’s economic growth has cooled to just 2 percent, which is the weakest since 1992, while inflation has risen to 6.5 percent annually amid economic stimulus.

But there may be a brighter, if nonetheless cynical upside to the national team’s disgrace. Bloomberg’s report said that should Brazilians’ mood sour to the point they decide to oust Rousseff from office that could spark a rally in its stock market.

“This is going to be catastrophic for the national mood,” Alberto Bernal, the head of research at Bulltick Capital Markets., told Bloomberg. “If the market sees the potential that Dilma will not be re-elected, then it will rally in a big way.”