Back to First Principles
Rebuilidng Brazil's capital markets requires a good dose of public confidence. But that can only be achieved with a stable economy, plus more modest inflation and interest rates.
Most Brazilians view the financial markets as a glorified casino infested with crooked speculators. As such, Brazil's capital markets will only develop into a source of long-term financing for industry or a safe and profitable place in which to invest once the economy has stabilized and interest rates are at reasonable levels.
Yet the markets' strength and vitality have become clear during the brief periods of low inflation and interest rates, economic growth and a stable policy environment.Three years after the 1994 Real Plan halted hyperinflation, trading volume on the São Paulo Stock Exchange rose to a record $1 billion a day. In 1997, market capitalization of Brazilian companies peaked at $330.6 billion. Stock prices climbed 300% in dollar terms between 1994 and July 1997, the month the Asian crisis began and triggered a succession of economic disasters throughout the emerging markets. In dollar terms, prices and turnover are now...
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