Brazil didn’t appear to have a great year.
Yes, it hosted the Olympics, but the games were mired by scandals big and small, from huge cost overruns to green water in the diving pool. Dilma Rousseff, the nation’s first female president, was impeached over allegations of corruption and her successor, Michel Temer, is facing a scandal of his own. Its economy is in shambles, with the GDP expected to shrink 3.5% this year, according to a survey of economists.
Despite all that—and perhaps because of it—Brazil had the best performing major currency and stock market of 2016, according to Bloomberg:
The Ibovespa, Brazil’s stock market index, slumped early in the year. It’s been on a tear since, as Rousseff’s ouster gave investors hope that the country’s three-year recession will finally end and Temer will introduce pension and labor reforms next year. The market index has also been powered by the performance of one of its largest constituents, Petrobras—the state oil company at the center of the Rousseff corruption scandal—which climbed 141% this year as global oil prices rebounded.
Similarly, the real—Brazil’s currency—has soared, not because Brazil’s economy is thriving but because traders expect an improvement.
We won’t know until 2017 whether the investor optimism is justified. Meanwhile, the standout performances of the Ibovespa and real are useful reminders that economic indicators are not the actual economy, and that a soaring stock index can reflect the bets of speculators as much as real prosperity.