What’s the full fallout from Brazil’s curtailed campaign?

By on July 15, 2014

By Patrick Foot, financial markets writer at IG in London. Learn how to trade the world’s forex markets with IG.

The party in Brazil is now over: though for Brazilians, it ended prematurely at the hands of a meticulous Germany.

The implications of that exit will likely be far reaching (the last time Brazil faced this kind of humiliation, they changed the colour of the kit they play in), with some commentators stating that the presidency of Dilma Rousseff has been seriously threatened by the performance against Germany. The quietening of protests against the government has certainly ceased dramatically, with a portion of the crowd chanting against the president during the match itself.

Brazil had invested a lot in this World Cup, so the question now is whether the success of the tournament as a whole can outweigh the sense of failure for Brazilian fans and subsequent impact on Brazil’s markets, currency and the major businesses involved.

Perhaps luckily, there was no chance for a rash reaction on the markets thanks to July 9 being a public holiday commemorating ‘The Constitutional Battle of 1932’. Instead, traders returned on Thursday.

Before the match, Brazil’s index – the Bovespa – had to some degree mirrored the World Cup itself. During the exciting first two weeks of the contest, the Bovespa was trading at around the highest level seen during 2014, reaching a peak in the middle of the first round (as Spain were all but knocked out by Chile and the Netherlands scraped past Australia). As the competition has settled though, so has the market: dropping 7.5% off of its peak by the time that Brazil versus Germany kicked off.

Now that the business of winning the World Cup is over, Brazil may be getting back to actual business. That drop in the Bovespa has been arrested, opening July 10 back at the level seen earlier in the week, and rising during the early part of the day.

The worth of the Brazilian Real (BRL) has also failed to inspire during the course of the tournament. Like the Bovespa, the BRL saw a peak in worth during the group stages of the competition, rising almost 4% from the beginning of June. Since then though, performance has cooled, dropping again in the run up to the match between the hosts and Germany. Unfortunately, unlike with the Bovespa, BRL did not rally after Tuesday’s game, opening lower on July 10 and dropping from there.

One of the intriguing subplots at this World Cup has been the battle between Adidas, who sponsor the tournament as a whole, their national team Germany and eight other teams in the contest, and Nike, who sponsor the Seleção and nine other teams at the tournament.

Adidas may have ‘won’ the semi-final battle – Argentina are also sponsored by the German brand, whilst Holland’s kit is made by Nike – but the beaten teams may take a little consolation from the fact that their loss didn’t appear to impact Nike’s stock listing. Instead, Nike’s share listing leapt almost an entire dollar on the day Brazil exited the World Cup.

The performance of Adidas was almost exactly the opposite, dropping over a euro in the first hour of trading after Germany’s win, before levelling out at around half a euro beneath the level it was trading at before the victory. Indeed, Adidas’ share price has suffered for the duration of this World Cup, dropping over 8% whilst Nike’s has risen 5%.

Those hoping that a fantastic tournament for Brazil might kick start investment in the country may be feeling a little underwhelmed now. When the final whistle finally went on Sunday, the country began life after the 2014 World Cup – and where this emergent economy goes from here remains to be seen.

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