Attacks in Brasilia raise perception of risk in Brazil in the short term, say experts

The invasion of criminals in Brasilia on Sunday (8) could drive away foreign investors and increase the country’s risk perception in the short term, say experts consulted by the CNN . However, the negative effect can be mitigated as the Three Powers come together, indicating political stability in the midst of the crisis and the strengthening of democratic institutions.

In the opinion of Paulo Gala, chief economist at Banco Master, the violence that took place the day before in the Brazilian capital brings a little of the perception of “Banana Republic”, but it should not be a worrying risk for the investment received in the country.

“The impact on the markets has been small, I don’t think we will have a big hit in terms of financial assets. In my view, Congress, the Executive and the STF are well aligned, and this makes the democratic process gain strength”, highlighted the economist.

In order to have a clear demonstration of unity and strengthening of the Powers, Raul Veloso, economist and president of the National Institute of Higher Studies (Inae), defends the announcement and implementation of a robust fiscal anchor, thus reducing the feeling of risk.

“What we have to do when there is a rupture of this dimension is to guarantee a more solid fiscal anchor for the country. For this great disaster, it is necessary to put a great weapon in place to calm the general mood ”, he pointed out.

According to the economist, the scenario ends up being worse for foreign investors, who are less able to evaluate everything that is happening due to the distance between countries.

“This type of news brings very negative repercussions for the country. We saw several international media reporting the invasion of demonstrators to the Three Powers without a response from the police”, said Felipe Izac, partner at Nexgen Capital.

“Demonstrations of this size, with this violence, bring political instability and uncertainty about the future. All of this carries a risk that only ends up tarnishing Brazil’s image around the world, especially when we talk about foreign investment,” she observed.

Next steps

Even so, analysts believe that investors have their eyes turned to Brazil, waiting for the next steps of the federal authorities, hesitating before taking any concrete action regarding the investments allocated in the country.

“Of course, foreign investors don’t like putting money in countries with democracy problems, but I don’t believe there will be massive capital flight after yesterday’s episode. It should have less input, but I don’t see a withdrawal scenario. I think they will observe what the federal government will do from now on”, declared Alexandre Espírito Santo, chief economist at Órama.

“When a new government comes in, it usually has a 6-month honeymoon with the population, but the violent attacks in Brasília showed that the population will not give the new government that time,” said José Márcio Camargo, chief economist at Genial. Investment.

However, for Camargo, attacks on institutions increase sensitivity in relation to the economic policies that will be implemented.

“The remuneration of fuels, for example, must be seen from a new perspective, more sensitive. In my opinion, what increases the risk for the country is thinking about revoking the Social Security reform, changing the labor reform. Without the ‘honeymoon’ with the population, it is necessary to wait to know if the government will carry out the necessary measures or populist measures”, he added.

Remembering the reaction to the Capitol

Following the invasion of supporters of former US President Donald Trump to the Capitol (center of the US Legislature) on January 6, 2021, the country’s main indices recorded highs in subsequent trading sessions.

Experts noted that the reaction took place amid the consensus of institutions’ commitment to US democracy and the strengthening of Joe Biden as president, removing tensions over the fallacies of Trump supporters regarding possible fraud in the election.

On January 6, the S&P 500 had a positive variation of 0.57%, while the following day it recorded a rise of 1.48%. The Dow Jones rose 1.44% on the day of the invasion of the US Congress, while on January 7 it advanced another 0.69%. The Nasdaq, on the other hand, had a drop of 1.4% on the day of the attack, but shot up 2.51% in the subsequent trading session.

“Despite the possible parallels that can be drawn with the attacks on the Capitol, the situation in Brazil is different, given that we are an emerging market that depends more than 50% on the volume of operations on the foreign investor’s exchange”, highlighted Órama.

“The direction of the markets in the coming days will be defined by the ability of Brazilian institutions to manage to avoid new acts of vandalism, and also not allow the adhesion of important categories, such as truck drivers. Restoring public order with a demonstration of political control and coordination is more important than ever,” added the brokerage.