Article | B3

Article

03/21/2019

Article

By André d’Almeida Monteiro, B3 Chief Risk Officer

The Ibovespa index, the Brazilian stock market benchmark, has surpassed the milestone of 100,000 points. This milestone is the index historical record since 1994, when Brazil tamed hyperinflation and launched the Brazilian Real. This landmark achievement was met with great enthusiasm. Behind this symbolic round number, there are many reasons, related to the past and to the future, to celebrate for those who believe in the country.

For almost 200 years, B3 has welcomed companies wishing to raise capital and investors willing to provide them with funding in return for shares of their business. Currently, 336 companies have raised funds through stocks at B3. Their total market capitalization amounts to BRL3.9 trillion, half of Brazil's GDP.

The Ibovespa is the most important stock index among the 23 indices computed by B3. Launched in 1968, the gauge combines the behavior of the most relevant stocks in Brazil. Every four months, its composition is reviewed by objective criteria. Currently, 62 companies and their 65 shares are part of the index. The largest stock represents 10.80% of the index and the smallest, 0.02%. The Ibovespa accounts for 85% of the Brazilian stock market capitalization. 

The Ibovespa is not an ordinary price. It is a Brazilian macroeconomic price, just like interest, exchange and inflation rates. Anyone wishing to follow the Brazilian economy should follow the Ibovespa.

The 100k milestone celebrates the challenges faced and overcome by Brazil in recent years. The country experienced the worst economic recession in its history during 2015 and 2016, as a result of its own mistaken economic policy decisions. Brazil tamed a serious inflation outbreak. A president was impeached. Her vice-president was nearly impeached twice. The Brazilian Congress approved a major labor reform and some relevant measures towards fiscal discipline. The Brazilian Central Bank brought interest rates closer to civilized levels in the right way, without bravado. The country went through a very stressful election in 2018.

During this period, the Ibovespa faced a lot of ups and downs. However, it ended up capturing the country’s strength and overcoming. From its worst moment in 2015 to 100k, the Ibovespa rose by 167%. 

The 100k milestone celebrates the opportunities that lie ahead for Brazil in the near future. The pension reform would remove the country from the path towards fiscal disaster and reduce indefensible privileges. The privatization of state-owned companies would relieve the fiscal deficit, reduce the chances of corruption and prevent them from becoming a tool of partisan politics. Measures to combat corruption and organized crime would restore security to the population. Economic history unequivocally shows that, without law and order, there is no economic growth. Raising the quality of public services would increase social welfare and speed up economic dynamics. Reducing bureaucracy and implementing a fiscal reform would make easier to do business in the country. Brazil would treat its entrepreneurs well. Higher trade openness would bring better options for Brazilian consumers and increase the country’s productivity.

The Ibovespa recognizes that the abovementioned opportunities have been seriously considered by the Brazilian society and that their materialization, however, is a complex and challenging task. All in all, the index attributes some probability of success for this agenda. As the government deliver positive results, the probability attributed to success will increase, everything else held constant. The reverse is also true. A success scenario can lead to a substantial leap in the equity allocation in Brazil. The potential for growth is relevant: the allocation of Brazilian savings in equities is still low when compared to similar economies.

Besides the media, who else is celebrating the 100k record? The investors and the listed companies in the Brazilian stock market and these companies’ supply chains. We at B3 are also celebrating this milestone as we work across all the stock market steps: issuance, listing, trading, clearing, settlement, central counterparty and central depository. The development and feasibility of the financial and capital markets is our cause – and that’s how we aim to boost Brazil’s growth.