What happened
On Wednesday, stocks in Brazil and other emerging markets got a jolt as fears about the potential fallout from China Evergrande Group's debt crisis eased. Azul (AZUL -3.62%), one of Brazil's top airlines, went along for the ride and was up 8% at mid-day.
So what
On the surface, you wouldn't think issues with China Evergrande, a Chinese real estate company, would ripple through to South America. But with more than $300 billion in debt, investors fear issues at Evergrande will tumble into emerging markets, putting stocks in Brazil and elsewhere under pressure in recent days.
Image source: Getty Images.
But as the week has gone on, the fears over a systemic issue that could tank international markets have eased, and markets are in rally mode on Wednesday.
Azul is a major South American airline with a leading marketshare in Brazil and would be badly hurt if the local currency collapses or the economy ends up in a recession due to issues overseas. Shares of Azul were down more than 15% since Aug. 24 prior to Wednesday's rally on fears the airline's post-COVID recovery could be stunted due to macro issues, and are enjoying a rally on Wednesday along with the broader markets.
Now what
Azul shares are still down almost 30% in the last three months and 50% below their pre-COVID range.
Azul is among South America's best-run airlines and looks like a long-term winner. But Brazil's COVID response has been uneven, and the near-term prospects were uncertain even prior to the Evergrande concerns. There is little reason to believe Azul shares will return to pre-pandemic levels any time soon.
For those who have a long-term mindset and can handle some turbulence, it is safe to buy into Azul and buckle in. But expect more down days along with up days along the way. For now, Azul shares are more likely to move on economic and pandemic conditions in Brazil than on their own merits.
