Brazilian markets suffer in coronavirus frenzy

. Jan 28, 2020
How coronavirus fears caused Brazilian markets to plummet 100 Yuan banknote with face mask. Montage: Ascannio/Shutterstock

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Good morning! We’re covering the economic effects of the coronavirus outbreak for Brazil. How fires in Australia can benefit Brazilian meat producers. And the latest feud within Odebrecht that could push the company into an even bigger crisis.

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How coronavirus fears caused Brazilian markets to plummet

Investors began panicking on Monday, after

recent developments concerning the coronavirus outbreak. The World Health Organization has raised its <a href="https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports">risk of a global outbreak</a> to &#8220;high,&#8221; after Chinese officials suggested people may spread the virus before showing symptoms and the number of nations with confirmed coronavirus infections reached 15. A coronavirus crisis could drive China’s economy into reverse, said Pantheon Economics in a new research note.</p> <div class="flourish-embed" data-src="visualisation/1292761"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Why it matters.</strong> For Brazil&#8217;s economy, which is still trying to gain momentum, risks to the global economy can deliver a big blow. In 2003, a SARS epidemic caused a 0.1-to-0.5-percentage-point drop in the global GDP. For Brazil, short-term impacts will be felt on the stock market and in currency exchange rates—but long-lasting effects will depend on how the coronavirus outbreak develops in China, where almost 3,000 cases have already been confirmed.</p> <p><strong>Big hit.</strong> Commodity companies had a terrible trading session. Vale (mining) and Petrobras (oil and gas) lost a combined BRL 34.1 billion (USD 8.1 billion) in market value on Monday alone. The Ibovespa stock market index dropped 3.29 percent—its worst day in 10 months—and the USD-BRL spiked to BRL 4.209 for every U.S. Dollar.</p> <div class="flourish-embed" data-src="visualisation/1293154"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Coronavirus.</strong> According to the U.S. Centers from Disease Control and Prevention (CDC), as there are still many &#8220;unknowns&#8221; about the coronavirus, the potential for a pandemic can&#8217;t be ruled out. The 2003 SARS virus was, as far as we know, deadlier—but this new strain seems to be much more contagious.</p> <p><strong>Brazil. </strong>Authorities say they have increased screening controls in ports and airports. So far, no triage system on ships or planes from China has been put in place. A new suspected case has been reported in Minas Gerais—the patient is a 22-year-old woman who has recently been to China. All suspected cases in Brazil have been dismissed so far.</p> <hr class="wp-block-separator"/> <h2><strong>Brazilian meat producers see opportunity in Australia fires</strong></h2> <p>Massive bushfires across Australia have caused widespread devastation. Over 30 people were killed, more than 3,000 homes were burned to the ground, and at least 56,000 cattle died in New South Wales, Victoria, and South Australia, the country&#8217;s biggest beef-producing states. Moreover, 6 million hectares of pasture were destroyed.</p> <p><strong>Why it matters.</strong> In this temporary absence of supply, Brazil emerges as a suitable replacement for Chinese buyers of Australian beef.</p> <p><strong>Soaring market.</strong> Chinese demand for animal protein has skyrocketed in recent months, as the country grapples with a swine fever outbreak that has killed at least 1 million of its hogs. In 2019, China and Hong Kong imported 13 percent more beef from Brazil than in previous years. &#8220;We believe [the international market] will continue to present <a href="https://brazilian.report/business/2019/12/12/expect-brazilian-agro-2020/">favorable conditions for Brazilian producers</a>, with Australia&#8217;s fires coupling with currency exchange rates favoring exporters,&#8221; said Abrafrigo, an association of poultry producers.</p> <p><strong>New trend?</strong> Last year was the warmest and driest in Australian history—and many experts say such conditions will become the new normal, making life harder for local meat producers.</p> <hr class="wp-block-separator"/> <h2>Former Odebrecht CEO sues current one</h2> <p>Marcelo Odebrecht—the former CEO of the construction group bearing his family&#8217;s name—has filed a lawsuit against current Odebrecht chief Ruy Sampaio. Mr. Odebrecht was fired for cause in December, giving him no right for severance payments. He accuses Mr. Sampaio of persecuting him and is trying by whatever means necessary to regain control of his family&#8217;s company.</p> <p><strong>Why it matters.</strong> This latest feud generates yet another risk factor to what was <a href="https://brazilian.report/business/2019/06/18/odebrecht-recovery-debts/">once Latin America&#8217;s biggest construction group</a>. Odebrecht is undergoing a massive court-supervised recovery process—and has encountered many problems to present creditors with a way out of its BRL 98-billion debt. The company is also facing investigations in several countries, being <a href="https://brazilian.report/latin-america/2019/10/01/peru-odebrecht-scandal-car-wash-vizcarra/">banned from operating</a> in some of them, such as in Peru.</p> <div class="flourish-embed" data-src="visualisation/1202655"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Context.</strong> The lawsuit filed by Mr. Odebrecht against Mr. Sampaio is just the latest chapter in a bitter feud between the former CEO and his father, Emilio Odebrecht. The rift between the two began after Operation Car Wash. Marcelo spent two years in prison—and was disgruntled by the fact that he shouldered much of the blame for the lawsuits uncovering the company&#8217;s systemic corruption. His father, Emilio, was convicted to four years under house arrest.</p> <p><strong>Claims.</strong> In his lawsuit, Marcelo Odebrecht said many of the executives who booted him from his own company concealed their participation in corruption scandals. People close to him say he spends most of his day searching among hundreds of thousands of emails for proof of his claims.&nbsp;</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Aviation.</strong> Brazil&#8217;s antitrust watchdog Cade has <a href="https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?DZ2uWeaYicbuRZEFhBt-n3BfPLlu9u7akQAh8mpB9yOk4W2RQf4NPaQVzi9GevJ7D6WEgpVkR27o7WXYWsyP2NHPwWtWXK6gfvgBS57S4mlctzp4KRgXhmV_d1qBiCp1">approved</a>—without caveats—the USD 4.2-billion merger between <a href="https://brazilian.report/business/2019/08/19/embraer-boeing-challenges-ahead/">Boeing and Embraer</a>. The deal encompasses the acquisition of 80 percent of Embraer&#8217;s commercial jet division and the creation of a new joint venture—in which Boeing has a majority stake—to produce the KC-390 military plane. However, the deal is still awaiting the green light from European regulators.</p> <p><strong>Scandal.</strong> Prosecutors in Brasília requested that the Federal Police open a criminal investigation into Jair Bolsonaro&#8217;s press secretary, Fabio Wajngarten. This plea comes two weeks after it was <a href="https://brazilian.report/newsletters/brazil-daily/2020/01/16/latest-scandal-bolsonaro-cabinet/">revealed that Mr. Wajngarten owns 95 percent of shares in a company</a> that takes money from the TV stations and ad agencies that have contracts with the federal government. The awarding of such funds depends directly on his office—making the case a flagrant example of conflict of interest.</p> <p><strong>Climate. </strong>A study published on Monday by PNAS magazine, of the U.S. National Academy of Sciences, says 10 percent of CO<sub>2</sub> emissions from <a href="https://brazilian.report/podcast/2019/08/28/amazon-fires-whatsapp-brazil-bolsonaro-macron/">Amazon destruction</a> came from within protected areas. These areas have lost 0.3 percent of their total biomass in 14 years—outside of them, the losses go up to 3.6 percent. The results, say researchers, prove the efficiency of setting up protected land to curb deforestation.</p> <p><strong>Divergence.</strong> When discussing the government&#8217;s program to curb teen pregnancy rates and <a href="https://brazilian.report/society/2019/12/01/brazil-new-challenge-against-hiv-aids-2020/">rising HIV infections</a>, Health Minister Luiz Henrique Mandetta diverged from Human Rights Minister Damares Alves, who preaches <a href="https://www.nytimes.com/2020/01/26/world/americas/brazil-teen-pregnancy-Bolsonaro.html">sexual abstinence</a> is the solution, &#8220;as early pregnancy takes the youth away from family and faith.&#8221; Mr. Mandetta said that advising towards a more responsible sexual behavior is good, but that it &#8220;can&#8217;t be the only—nor the main—focus of the anti-teen pregnancy campaign.&#8221;</p> <p><strong>Peru.</strong> A new Congress has been elected in Peru, after <a href="https://brazilian.report/latin-america/2019/10/01/peru-odebrecht-scandal-car-wash-vizcarra/">President Martín Vizcarra dissolved the legislative body</a> back in September. Early results suggest centrist parties gained some terrain, while the once highly-influential opposition party Popular Force, headed by Keiko Fujimori—daughter of former authoritarian president Alberto Fujimori—has suffered a major blow. A quick count by Ipsos points to a drop from 36 to just 7 percent of votes.

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