At one point， things were looking so bad for Brazil’s Bovespa stock index that investors across the country started opening Facebook events pages to mark the imminent trigger of the market’s “circuit breaker”.

The bourse came within a whisker of implementing the circuit breaker， under which trading is suspended if the market falls 10 per cent， after stocks plunged as much as 9.75 per cent during the mid-afternoon.

Alongside pictures of the Bovespa logo on a tombstone， Facebook users posted comments such as “welcome to 2008!” and “don’t cry， get drunk”.

Latin America’s largest economy has had the dubious distinction of being the biggest loser among the large emerging market stock markets during the sell-off in global equities.

In spite of its relatively solid economic position， including having among the largest foreign exchange reserves in the world， investors have dumped Brazil and other “risky” assets.

Analysts say Brazil is paying the price for having one of the most liquid markets among the large emerging economies and for the dominance of commodities companies among its main stocks. Petrobras， the country’s state-run oil producer， and Vale， the world’s largest iron ore exporter， are seen as proxies for global growth.

“Brazil tends to get whacked around on days or timeframes when people are adjusting their expectations for a US recession， if not a more severe slowdown in growth globally，” says Bret Rosen， senior credit strategist for Latin America at Standard Chartered in New York.

The Bovespa has lost about 26 per cent of its value this year， on a par with debt-ridden Greece in local currency terms， including 13 per cent in just the past month.

The Bovespa index gained 5.1 per cent on Tuesday， to 51，150.40， rebounding from a more than 8 per cent drop on Monday. Brazil’s currency， the real， added 2.4 per cent to R$1.5881 against the dollar.

Dilma Rousseff， Brazil’s president， said the country’s fundamentals justified confidence in its prospects. Brazil’s foreign exchange reserves today are nearly US$350bn， up 80 per cent since the global financial crisis in 2008.

“We are in a much stronger position to confront this crisis than we were at the beginning of 2009 and the end of 2008，” she said.

The selldown of Brazil in recent days follows a period of prolonged bearishness on Brazilian stocks， with foreign fund inflows falling 70 per cent in the first half of the year.

This was because of concern over government meddling in state-run companies， such as Petrobras and Vale， rising inflation and interest rates， and concern over a potential slowdown in consumer credit.

The Standard Poor’s downgrade of the US has provided another excuse to sell as investors become more concerned over the threat of recession in developed markets.

“There is going to have to be profittaking in emerging markets even if the problems aren’t centred there，” says Nick Chamie， global head of emerging markets research at RBC.

Analysts say the exodus of funds from Brazil might have been greater had the country not put in place a complex system of capital controls that penalise investors for pulling money out.

Designed to target short-term speculators， these measures have had the effect of maintaining the strength of the real against the dollar， an annoyance for a government that has been trying to weaken the currency to help domestic manufacturers and exporters compete on global markets.

“When you bring in lots of measures to control the exchange rate you end up disrupting the market， so it’s pretty stagnant nowadays，” says Flavio Serrano， an economist with Banco Espírito Santo in S?o Paulo.

Perhaps the greatest irony for Brazil， however， is that its markets are still considered a “risky” asset at a time when the world’s problems are emanating from the developed world. The flight to supposedly “safe” US treasuries came a day after they were downgraded.

Jerome Booth， head of research at London-based Ashmore Investment Management， says investors “had to get their heads around” the idea that emerging markets are no longer the main sources of risk in the world. While developing countries engage in a process of deleveraging that could take decades， the main pools of global liquidity today reside with emerging market central banks， which hold most of the world’s foreign exchange reserves. (Financial Times)