Perhaps it is too simplistic to assume Brazil is a legitimate default candidate simply because Argentina and likely Venezuela have endured the same fate. Then again, when markets talk, investors would do well to listen.
In late March, Standard & Poor’s pared Brazil’s sovereign debt rating to BBB-, the lowest investment grade. S&P did raise its outlook on Brazilian debt to stable from negative, which implied further downgrades from the ratings agency, let alone default, were unlikely in the near-term. [S&P Downgrade Hampers Brazil ETFs]
But that was March. On March 25, the day after the S&P downgrade of Brazil, Petrobras (NYSE: PBR) closed over $12. Brazil’s troubled state-run oil giant and 6.6% of EWZ’s weight will be lucky to close over $6.50 today.
To this point in Tuesday’s session, three Brazil ETFs (EWZ is not one) have hit all-time all lows, which looks good compared to the six that did so on Monday.
Brazil 5-Year CDS
Chart Courtesy: Neil Azous, Rareview Macro