Market Round Up: Big Bad Brazil 👊 Chasing China 😵
1. Big Bad Brazil
Brazil’s far-right candidate, Jair Bolsonaro, took a sweeping victory in their presidential elections yesterday, winning an overwhelming 55.2% of the votes cast.
Bolsonaro, a 63 year-old ex-army officer, has won the hearts of the Brazilian people by promising some much-needed economic reform in terms of pensions, general economic openness and corruption – its about time!
As Latin America’s largest economy, Brazil is now bringing renewed hope to emerging markets for the week ahead which have been taking a severe beating over the last few weeks. Analysts believe that general positivity surrounding the election should bring an appreciation in Brazil’s currency, the real.
However, whilst the overall feeling is good about his anti-corruption stance, many remain worried about how his strong military background could bring elements of dictatorship and social suffering into his term as president.
His dramatic opening up strategy, rather alarmingly, will also look to exploit the beautiful Amazon rainforest for its wealth of natural resources – leaving many environmentalists outraged.
scary stuff just before Halloween!
2. Chasing China
China’s currency, the Yuan, has been in a downhill slide for the last 6 months, losing almost 9%. This is coming dangerously close to its weakest value in a decade at almost 7 dollars per Yuan – what’s going on China?
Tariffs, that’s what. As an export-led economy, China relies on its exports being cheap so that overseas buyers prefer their goods to locally made ones (comparative advantage). Tariffs throw the Chinese a curve-ball by adding a tax on top of their products, making Chinese goods more expensive, and local goods more competitive.
How China deals with this is by allowing their currency to get cheaper to offset the price increases that come from the tariffs – clever stuff, but how much longer can the Chinese keep this up if President Trump keeps piling on the pressure?
Chinese President, Xi Jinping, must keep a close eye on his currency because slipping too far could put the Chinese stock market and companies with dollar-denominated debt into serious trouble.
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