Brazilian stocks higher in volatile trade after capital storming

SAO PAULO/LONDON (Reuters) – Brazilian stocks rose in choppy trade on Monday, the day after thousands of supporters of former President Jair Bolsonaro stormed government buildings in the capital, echoing the January 6, 2021 insurrection in Washington. .

The Brazilian real weakened nearly 0.55% against the dollar in spot trading, while the country’s benchmark stock index Bovespa (.BVSP) It gained 0.5%, after falling as much as 0.75% earlier in the day.

The coordinated invasion on Sunday afternoon, which overwhelmed law enforcement and left the Supreme Court building and other locations in Brasilia with severe internal damage, shocked observers, including many in the financial industry.

Some analysts argued that the markets were calmed by the Brazilian police’s containment of the violence in Brasilia, while others predicted that there would be political repercussions that could affect the South American country’s economic policy.

“We were surprised at the level of violence,” said Mathios Spies, an analyst at Empiricus. “The Brazilian stock exchange has been ripped off from that hype about potential institutional rip-offs, so we can definitely see some negative effects.”

Economists at JP Morgan and Capital Economics said the repercussions of the riots would be short-term and primarily political, though they noted that leftist President Luiz Inácio Lula da Silva and his new administration’s agenda could be boosted.

“The riots could lead to a long-term risk premium on the country’s financial assets, especially if they prompt President Lula to double down on his economic agenda,” said William Jackson, chief emerging markets economist at Capital.


The Brazilian real and Bovespa, which have outperformed other emerging markets in Latin America for much of 2022, have already been hit by turmoil in the first few days after Lula’s Jan. 1 inauguration over concerns about increased government spending in Latin America’s largest economy.

On Friday, both did better after Lula said the economy could grow while the government’s public finances are in check.

“As the president grows stronger and the opposition weakens, one could see greater radicalization from the left, possibly pushing the agenda further than one would think,” said Amy Chayo-Cherman, Latin America and Brazil equity analyst at JPMorgan.

Events in Brasilia will undermine the fragile market confidence in Brazil, said Mariano Machado, principal analyst for the Americas at risk intelligence firm Verisk Maplecroft, noting that investors should prepare for volatility ahead.

However, some analysts said any negative market reaction could be temporary.

“With the situation contained, we expect a limited impact on Brazilian assets, despite the strong negative spillover,” analysts at brokerage XP Investimentos said in a research note.

Hundreds of Brazilian police in riot gear, some on horseback, gathered on Monday at a camp of Bolsonaro supporters near the army headquarters in Brasilia. Lula promised that those responsible for Sunday’s violence would be brought to justice.

Later, Bolsonaro was taken to a hospital in Florida, but his condition was “not alarming,” according to a source close to his family.

“Given that the situation appears to be under control in Brasilia, I would expect any impact of the asset class to be short-lived,” said Alejo Zerounco, Emerging Markets Americas chief investment officer at UBS Global Wealth Management.

“I think the situation will return to normal quickly,” said Christian Maggio, head of portfolio strategy at TD Securities in London. “However, it is an event worth keeping an eye on, as it may not be completely over yet.”

Additional reporting by Gabriel Araujo and Paula Lair in São Paulo and Karin Strueker in London; Additional reporting by Susan Mathew in Bangalore, Tatiana Bautzer and Peter Frontini in São Paulo, and Carolina Polis in Mexico City; Editing by Diane Craft, Susan Fenton, and Paul Simao

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