The Stock Market in April – Not a Happy Month

We have become accustomed to the Brazilian stock market’s performance since the first
quarter of 2009, that it comes as a shock to see not only the stock market losing 4% of its
value in April of this year (down 1.5% for the year), but also being out performed by the
five other markets that we follow. The stock markets chosen are the Dow Jones Industrial
Average (“DJI”), and the Standard and Poors 500 (“S&P 500”), both of the USA, the
Financial Times and London Stock Exchange 100 Index (“FTSE 100”) of the United
Kingdom, The Cotation Assistee en Continu 40 (“CAC 40”) of France, China`s Hang
Seng Index (“HSI”), and Brazil`s Indice da Bolsa de Valores de Sao Paulo (“Ibovespa”).

Figure 1

Stock Markets in April

106%
104%
102%
100%
98%
96%
94%
92%
10

10

10

10 0

16 0

20 0

22 0

26 0

30 0

0
0

12 0

14 0

18 0

24 0

28 0
01

01

01

01

01

01

01

01

01

01

01

01
1
20

20

20

20
/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2

/2
2/

4/

6/

8/
31

4/

4/

4/

4/
3/

4/

4/

4/

4/

4/

4/

4/

4/

4/

4/

4/

DJI FTSE
Source: Yahoo Finance
CAC 40 HSI Ibovespa S&P

Figure 1 above shows the performance as a percentage of each market’s closing index on
March 31st, through the close on April 30th. The only two markets able to hold their value
throughout April were the USA’s Dow Jones and Standard & Poor’s indices that both
finished the month at 1.5% up. The two European indices, the FTSE, and the CAC 40 lost
2.2%, and 4.0% in value, respectively. The Hang Seng lost 0.6%, and Ibovespa shared
the CAC 40’s 4% loss.

To be sure, April was a difficult month in many ways. Uncertainty was rife in European
markets with Greece being the most prominent, but not the only country unable to resolve
its debt problems. Spain and Portugal were in similar if somewhat less dire
circumstances. The rest of the European community sought a strategy and financing to
help the countries in difficulties. The problems had their effect on markets worldwide,
with the usual flight of capital to the more established markets, causing investment
capital to leave Brazil, and other emerging markets.
April was also a month of some changes in economic policy in Brazil which affected the
stock market. The Monetary Policy Committee of Banco Central decided to raise the
Selic rate from 8.75% to 9.5% as an attempt to reverse an incipient inflationary trend. In
a market where expectation of stock market appreciation was running at the 7% - 9%
levels for 2010, the interest rate rise certainly will disintermediate investment funds from
equities to fixed income.

A further issue is the return of the banks in Brazil to keeping compulsory deposits (15%)
at Banco Central from which they were temporarily exempt during the period of crisis.
Now that the crisis has been deemed over market liquidity has reduced thanks to the
resumption of the compulsories. This also will have a negative effect on the stock market.

For perspective purposes, we include below, as Figure 2, the performances of the markets
defined above, over the 22 month period from June 30th 2008 to April 30th 2010.

Figure 2

Stock Market Performance, J une 30 2008 to April 30 2010

1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
6/
7/30/
7/14/20
8/28 2008
8/11//2008
9/25 2008
9/8/2/2008
1022 0008
10/6//208
11/2 2008
11/30/208
12/1/72000
12/1 /2088
12/1/2000
1/ /295/2088
1/12/ /200
2/26 20008
2/9/2/20098
3/23/0009
3/9/2209
4/23/0009
4/6/2209
5/20/0009
5/4/2209
6/18 0009
6/1/2/209
6/15/0009
7/29 209
7/13/2009
8/27//2009
8/10 2009
9/24/2009
9/7/2/2009
1021/0009
10/5 209
11/19/2009
11/2/ /209
11/1 2000
12/306/2099
12/1 /200
1/ /248/2009
1/11 /2009
2/25/20009
2/8/2/20109
3/22 0110
3/8/2/200
4/22 0110
4/5/2/200
19 0110
/2 0
01
0
DJ I FTSE CAC 40 HSI Ibovespa S&P

Of the six stock markets, only the Ibovespa continues over its level of June 30th 2010,
with a gain of 3.9%. The worst performer is the CAC 40 with a loss over the period of
14%. In between we have the FTSE, having lost 1.3%, the Dow Jones having lost 3.1%,
the HSI down 4.5%, and the S&P down 7.3%.

The events of the last month reinforce the view that the effects of the crisis are still being
felt, and that the Greek situation, for instance, where the European Community has
offered € 117 billion in debt, was in return for Greek Government austerity commitments
that will last for many years. The issue for Brazil is whether the experience of the last
month represents a readjustment of values for a protracted period, or whether the market
and country can continue to capitalize on its recent positive economic performance.