Why UBS Says Brazil’s 7-1 Trouncing Is Bearish for Stocks

Conventional wisdom has been that a Brazil loss at home in the World Cup would be a positive for the country’s financial markets. A defeat, the argument went, would sour the national mood and prompt voters to oust President Dilma Rousseff, who has sunk the economy into stagflation.

Yesterday’s 7-1 loss to Germany, though, was so crushing that it upends that theory, according to Geoffrey Dennis, the head of emerging-market strategy at UBS AG, who’s been covering Brazil since the early 1990s. Yes, the defeat will hurt Rousseff’s chances at re-election in October, but the lopsided outcome could also damp investor and consumer confidence in a country that obsesses about its national pastime, he said.