It’s Now a Big Bear Market in the BRIC Country

The red flag of Brazilian stocks continues to fly over the commodity sector.
Several months ago, we noted the budding weakness in Brazilian stocks as a reason to stay cautious toward commodity investments. Brazil is one of the ultimate destinations for investors who want exposure to commodities. Its state-operated oil company Petrobras has found a series of giant offshore oilfields in the past decade. Brazil is a major producer of agricultural commodities like soybeans, cattle, corn, coffee, and sugar. It’s also a major producer of iron ore.
All this makes Brazil a great way to gauge the market‘s opinion of commodity investments. When we wrote this piece in May, the market was just starting to send Brazil’s benchmark index lower… which we called a “red flag” for commodities. As you can see from today’s chart, things are getting worse down south.
After surging higher off its 2008 credit crisis low, Brazil’s benchmark stock index traded sideways for over a year. But in the past four months, this index has plunged to new low after new low. This week, it struck its lowest point in more than a year. We state again: If commodity investments are to gain in 2011, they’ll need Brazilian stocks at the front of the pack. Right now, they are lying down and playing dead.