◼ FINANCE Bloomberg Businessweek March 23, 202025JOHN
TAGGART/BLOOMBERG
● Emerging Markets in Free Fall
Emerging markets are having the worst start to a
year since the asset class came into being in 1988.
The brutal losses have erased almost $5 trillion
from equity values since mid-January, with stocks
in Colombia, Greece, and elsewhere down more
than 40%. Emergency rate cuts from South Korea
to Turkey did little to calm investors, who pulled a
record $4 billion from emerging markets exchange-
traded funds over the five days ended March 13. Latin
American currencies keep hitting lows against the
dollar. Mexico and Colombia, countries that rely on
oil revenue, saw their currencies fall more than 20%.
The crisis has been especially dramatic in Brazil.
Six times in eight days, stock markets fell sharply
enough to trigger the circuit breakers that kick in
to halt trading when losses are too steep. The real
sank 2% on March 9, when oil crashed, then 3.7%
two days later and another 3.2% on March 16. The
rapid drop in the real will raise the price of imports,
adding pressure to inflation and forcing companies
and people to revise their budgets. “It was six months
in one day,” says Marco Antonio Mecchi, a 25-year
market veteran who founded MZK Investimentos.
Mecchi and two other Brazilian investors described anexhaustingfewdays—hundredsofunreadmessages,
long hours watching screens flash red, and sleep-
less nights watching Asian markets.
But the crash wasn’t hitting just the professional
traders of São Paulo. Low interest rates—a novelty
in a country scarred by years of hyperinflation—
helped to pull many small investors into the stock
market in recent years. Retail investors accounted
for 18% of local stock trading last year, the highest
share since at least 2013. Some of these new play-
ers are now enduring their first stock market cri-
sis. Niwton Braz, who sells construction materials,
saw his income plunge by about half over the past
two weeks because of the uncertainty caused by the
virus. And more than half of his investments were
in stocks. “It does leave you in sort of a panic,” he
says. “I had plans for that money, but now that will
have to wait.”
Brazilian policymakers are in a tough spot. A large
stimulus package would harm efforts to reduce the
deficit that cost the country its investment-grade
rating in 2015. That leaves monetary policy as the
main tool to keep growth from stalling. But cutting
rates will put more downward pressure on the real,
says Anders Faergemann, a London-based portfolio
manager at PineBridge, and further erode Brazilians’
purchasing power. �Julia Leite and Aline Oyamada,
with Felipe Marques▲ The São Paulo Stock
Exchange on March 16