Brazilian Stock Market Responding to Capital Inflows

Brazil and other emerging economies are experencing a resurge on capital inflows. There are two opposite consequences, on the one hand, the capital inflow have provided a boost on domestic demand, but on the other hand, these flows have increased concern about domestic overheating, external competitiveness (currency apreciation) and hightened risks of a potencial booom-bust cycle. There capital inflows have induced booms in many equity market, and concerns about asset price bubbles have been growing, according to the World Economic Outlook released by IMF.

In Brazil it is possible to see this boom caused by the foreign investors on the derivatives market (Figure 1) and stock market (Figure 2).

Figure 1. 1 Year BM&F Flux

Figure 2. 1Year IBovespa Flux