After fans of former president Jair Bolsonaro invaded important government facilities on Monday, mimicking the American uprising on January 6, 2021, analysts predicted that Brazilian assets could experience new volatility.
Images of the planned invasion on Sunday afternoon surprised observers, including those in the financial sector. The assault overpowered police officers and severely damaged the interior of the Supreme Court building and other locations.
Given the augmented institutional risk, Ricardo Lacerda, the founder and CEO of the renowned Brazilian investment bank BR Partners (BRBI11.SA), revealed in a statement that he can foresee short-term but a striking market turbulence, specifically on Monday. According to Lacerda, the incoming administration’s vitality may be depleted as the end of polarisation appears to be far off.
Brazil’s Real money and its benchmark Bovespa stock index had already experienced volatility in the days following President Luis Inacio Lula da Silva’s inauguration due to worries about increased government spending.
In spite of Brazil’s real and Bovespa overwriting other up-and-coming markets in Latin America for the primary seasons of 2022.
However, the real and Bovespa did much better on Friday after Lula stated that the nation could prosper while maintaining tight control over government spending.
However, several analysts claimed that any unfavourable market reaction might be transient. According to Alejo Czerwonko, chief investment officer for emerging markets in the Americas at UBS Global Wealth Management, the situation in Brasilia appears to be under control, therefore any impact on asset classes is anticipated to be temporary.
Carlos Eduardo Furlanetti, a professor at the FIA Business School, predicts that the government of Lula may actually benefit strategically in the medium term from a robust response from the institutions supporting the president, such as Congress and the Supreme Court.
Asset manager Ouro Preto analyst Bruno Komura predicts a poor opening for the market, with interest rates climbing and the dollar and stock market plummeting.
But Komura anticipates a strong institutional response against the rioters will cause the markets to rebound by the end of the week.
The fact that the Brazilian rioters in Brasilia were assisted by lenient police enforcement, something that did not occur in the U.S. Capitol, contributes to the impression of political risk in the nation, according to Carla Argenta, the chief economist at CM Capital.
However, she said, if the institutions stand together against the invaders from Brasilia, things might turn around.
The acts, according to Enrico Cozzolino, a partner at asset management Levante Investimentos, revealed a stark rift in society. Since the former president Dilma Rousseff’s impeachment, they claimed, there has been a lack of consensus.
Given Bolsonaro’s reputation as a proponent of the free market compared to Lula’s Workers’ Party, major segments of the Brazilian banking industry have generally backed him; yet, the primary industry association for the sector strongly condemned Sunday’s violence.
The leader of the banking industry association Febraban, Isaac Sidney, demanded a “strong reply” to the measures.
On the other hand, Brazil reported a record trade balance for November earlier last month, based on official data released on Thursday. This resulted from rising exports, with a focus on sales to China.
The trade surplus in November reportedly hit $6.7 billion, exceeding the $5 billion surplus predicted by economists in a survey.
In the series that began in 1989, this was the month’s best performance.
Exports increased to $28.2 billion, a 30.5% increase over the corresponding month in 2021.
Herlon Brandao, the undersecretary of intelligence and international trade statistics, said they benefited from a 35.6% boost in sales to China, which enabled a 0.2% year-to-date improvement in exports to the Asian superpower, reversing the 1.8% decrease witnessed in the period between January and October.
China, Brazil’s major trading partner, anticipated receiving its first shipments of Brazilian maize in November following the implementation of a new trade agreement between the two countries.
