Anyone following the COVID-19 developments worldwide will undoubtedly have seen the dramatic news about Brazil. With over 1.88 million cases and around 40,000 new infections each day, the country is still fighting this silent killer every day for the time being. To give an idea of how serious the situation is, 14.4% of all cases are registered in Brazil. An average of 1,000 people a day die as a result of COVID-19. The only country with worse figures is the United States. Of course, this has major consequences for the economy and Brazilian companies on the stock exchange. Is there a ‘Brazilian’ share that can be interesting to follow despite all the perils?

The economy of Brazil is like a rollercoaster

The currencies in the South American countries have been experiencing an notable decline in value for recent months. Currently, $1 USD equals R$5.35 BR, compared to R$4.02 on January 1, 2020. The exchange rate has never been so badly for Brazil in all its history with a low on May 12, 2020 with R$5.89 equalling $1. On top of that, the rising tensions between the United States and China are putting further pressure on companies in Brazil, as the country trades a lot of goods and raw materials with these two countries. Shareholders do not seem to be taking risks despite the recent signs of improvement in Brazil’s economy. Previous data has shown that monthly economic activity in Brazil started to grow again in May, after two sharp consecutive declines in March and April. Can the trust be regained again soon seems to be the question.

The Brazilian Bovespa stock index

The Brazilian Bovespa stock index (IBOV) rose and had its strongest closing in more than four months thanks to material shares. The Bovespa – also called Ibovespa – is the reference index of about 60 shares traded on the B3 (Brasil Bolsa Balcão). With a low on March 23, 2020 of $12,353.21, the Bovespa USD has since risen to a current level of $18,255.93. Vale S.A. (VALE) had the biggest boost for the Bovespa, after following the prices of raw materials, supported by an expected greater demand from China.

Vale doesn’t undermine the business

Vale is known as a Brazilian mining group. It’s Brazil’s second largest company after Petrobras and is the world’s largest producer of iron ore, pellets and nickel. It’s also the largest producer of manganese and is a major player in logistics and owns two Brazilian railway lines. Vale aims to become one of the safest and most reliable mining group in the world. They want to achieve this in a sustainable, ethical and transparent way. The most important geographical market is Asia with over 60 percent, despite its activities in South America, Africa and Oceania. China is the most important sales market in Asia with a turnover share of half of the total. This means that the expected greater demand for raw materials from China could have a direct effect on Vale’s market position.

After pain comes the gain

Mining and iron mining are industries that generally enjoy an increase in confidence. Vale has had a profit review activity over the past month, which has led analysts to be optimistic about the company’s prospects in both the short and long term. The industry has seen solid revisions to its estimates over the past period, ensuring that more investors are following the mining group’s developments closely. Many operations are continuing as the situation in various regions improves. This results in recent interesting developments that follow each other in rapid succession. On July 13, the Japanese steelmaker Kobe Steel reported that it has reached a non-binding agreement with Vale to cooperate in offering low carbon solutions for the production of iron. Not much later, the Swedish mining and infrastructure equipment manufacturer published that it has entered into a battery as service agreement (BaaS) with Vale to safely install battery plans in two of its mining operations. This will allow the miners to work under healthier conditions as air quality improves.

Vale’s share today rose from $10.78 to $11.60, a percentage increase of 7.61%.

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By Omar