Why Shares of Gerdau SA (ADR) Tumbled Today

What happened

Shares of Gerdau (NYSE: GGB) tumbled more than 10% by 2:45 p.m. EDT Thursday in what was a tumultuous day for stocks in Brazil. The Brazil-based steel company sold off along with that country’s stock market amid fears that the recent trucker strike could have a deep impact on the economy.

So what

The Brazilian stock market plunged on Thursday, with the BOVESPA Index falling nearly 6% at one point. Meanwhile, a popular exchange-traded fund that tracks several large Brazilian stocks, the iShares MSCI Brazil ETF, tanked more than 8%, which was its worst decline in more than a year. Driving the sell-off was continued concerns about Brazil’s economy after a trucker strike ignited by fast-rising diesel prices disrupted the flow of goods in the country over the past few weeks. That’s stoking fears that the country’s economy could fall back into a recession not long after finally climbing out of a deep downturn.

Image source: Getty Images.

The current turmoil in Brazil has riled investors who are worried another recession would hurt demand for steel in the country. That’s why shares of steel-maker Gerdau are selling off today.

Now what

Brazil has been a tough place for investors over the years because its economy is heavily reliant on volatile commodities like oil and iron ore. It’s still in a fragile state due to the impact of weak commodity prices in recent years. While those prices have recovered over the past year, that downturn is still fresh in the minds of investors who are highly concerned that the economy could tip back into a recession due to the impact of the trucker strike. Because of that, investors might want to take a wait and see approach before jumping into Brazilian stocks like Gerdau since it could have further to fall if the economy does head in reverse.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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