Brazilian stocks are ending the year as the world's most volatile after investors endured a recession, an election and the country's biggest-ever corruption scandal.
Swings in the Ibovespa gauge pushed volatility this year to 26 per cent, the highest among the 20 biggest stock markets tracked by Bloomberg. The rallies and routs in Sao Paulo, including two bear markets and a 38-per-cent surge in between, were more extreme than in nations including Nigeria and Israel.
A first-half recession and a down-to-the-wire presidential campaign that saw Dilma Rousseff re-elected, disappointing investors who had bet a new government would bolster growth, combined to exacerbate stock swings. Confidence in Brazil has been further eroded as a selloff in commodities dimmed the prospects for exporters while kickback allegations put state-run oil giant Petroleo Brasileiro SA at the centre of the largest money-laundering probe in the nation's history.
"There's uncertainty about the direction of the economy, about what growth will be, and now you have this headwind from oil," Paul Zemsky, the head of multi-asset strategies at Voya Investment Management LLC, which oversees $213-billion, said by telephone from New York. "There are a number of issues investors are skittish about in Brazil. And when you have a corruption question, that certainly doesn't help."
Traders use volatility to determine the risk of holding a given security as it measures the rate at which prices move up or down. In general, higher volatility is associated with riskier assets as it means that prices can swing dramatically over a short period of time.
The Ibovespa entered a bull market May 7, completing a 20-per-cent rally from its March low, on speculation Rousseff would be voted out amid the worst economic performance of any Brazilian presidency in two decades. The gauge started to reverse course after hitting a 19-month high Sept. 2, as the incumbent's re-election bid gained strength before the October vote and the central bank boosted interest rates to stem inflation.
The gauge's losses deepened amid a widening probe into construction companies that allegedly formed a cartel to win contracts that include 59 billion reais ($22-billion) of work from Petrobras. The selloff sent the Ibovespa into a bear market Dec. 12, driving its 90-day volatility to a three-year high.
The Ibovespa dropped 1.2 per cent to 50,007.41 at the close of trading in Sao Paulo Tuesday. The gauge lost 2.9 per cent in 2014, its second consecutive year of declines.
Brazil has four of the most-volatile stocks among the world's largest 500 companies, according to data compiled by Bloomberg. Ninety-day volatility at Banco do Brasil SA, Banco Bradesco SA and Itau Unibanco Holding SA, the country's three biggest lenders by market capitalization, climbed to more than 58 per cent this year.
Swings in Petrobras, whose shares are trading near a decade low, more than doubled in 2014 to 86 per cent. The Rio de Janeiro-based oil producer said Dec. 12 it would delay its financial results for a second time while the corruption probe continues. The company said in a regulatory filing Monday it will release unaudited third-quarter results in January.
Petrobras's managers, including chief executive officer Maria das Gracas Foster, have given access to their computers, phones and offices to independent investigators who have a one-year mandate to probe corruption allegations, Foster told reporters Dec. 17.
In addition to the Petrobras inquiry, the 46-per-cent decline in the price of crude oil this year has intensified stock swings on concern growth in the commodity-exporting nation will slow further. Expansion in Latin America's largest economy will probably trail the region's average for a fifth year in 2015, according to analysts surveyed by Bloomberg.
Swings in Brazil were three times bigger than those in Israel, where the conflict with Hamas has dented tourism and the strength of the shekel has curbed exports. Volatility in Nigeria's equity benchmark was 9 percentage points lower than the Ibovespa's even after the naira's 12-per-cent slide this year and increased attacks by Islamist militants.
"With oil prices entering the picture, that adds a lot of volatility to the economic outlook for Brazil," Lu Yu, a money manager at Allianz Global Investors, which oversees $511-billion in assets, said in a telephone interview from San Diego. "Since the economy is so reliant on the commodities side, volatility will stay here for a while."