On March 17th, Petroleo Brasileiro SA- Petrobras (NYSE:PBR) hit a bottom at 11.84 reais (approximately $5.84) as investors showed their dissatisfaction regarding the mismanagement of the stated-owned company. Even in 2008, during the height of the financial crisis, the shares hadn’t been hurt so badly (they plummeted to 15.38 reais or approximately $7 in November of that year).
There are some differences between the 2008 financial crisis, and the internal issues that Petrobras faces right now when it comes to public perception. Six years ago there were fears of a global recession led by a slowdown in comsuption as a result of high unemployment, and in investments – regarded here as capital channeled for the purchase of equipments and machinery. Therefore, Petrobras was likely to be affected by a lower demand for Crude Oil and other products.
Today, there is a different story to be revealed. The global economy is struggling to heal from the financial crisis in the United States and the sovereign debt issues in Europe, but the prevailing sentiment was that of resilience regarding the challenges the oil company faced in the years following the two events. Now, the attitude toward the markets is not the same: investors are taking riskier positions by generating strong rallies driven by expectations of a shift in power. It is not about proposing a solution, but making those causing damages leave. Let’s see how much they are betting on this.
On August 13th, the day of the tragedy that killed the candidate Eduardo Campos of the Brazilian Socialist Party (PSB) and brought Marina Silva of the Pro-Environment Party (PV) into the game, Petrobras presented a huge trading volume of as much as 2 billions reais (approximately 900 millions U.S dollars). In the days following this strong movement to the upside, there was a slowdown in the purchases as a consequence of investors locking in gains and waiting for drivers to support new rallies.
The upward trend that occurred on August 13th is the result of several reasons. First, a stronger candidate, who got 18 million votes back in 2010, stepping in a election that was likely to be won by the incumbent, Dilma Rousseff. Second, optimism spread by banks and brokerage houses that have been struggling for years to bring clients round that markets are still attractive for those with long-term views. And, third, breaks of technical points might have led short-sellers to give up their positions in the face of rising risks for them.
Finally, it is important to make some observations. There is so much room for the benchmark Bovespa to rise as the Brazilian market struggles to cope with rising public indebtedness and slower prospect of growth which has led the Latin America country to stay far behind the upward trend of the US in recent months. Despite the economic conditions, corporations are strong, so investors are likely to find Brazil attractive at certain point, especially if the electoral outcome confirms expectations of a new government committed to tackling the fiscal issues.