Brazilian assets are set to face renewed volatility on Monday after supporters of former President Jair Bolsonaro stormed the headquarters of the Three Powers in Brasilia, echoing the invasion of the Capitol by supporters of Donald Trump in 2021, analysts said.
The images of the coordinated invasions this Sunday afternoon without having, for hours, an effective response from the security forces, left the Federal Supreme Court (STF) building and other places seriously damaged internally, shocking spectators, including those in the financial sector.
Ricardo Lacerda, founder and chief executive of Brazilian investment bank BR Partners, said he expected markets to react with short-term volatility, especially on Monday, due to heightened institutional risk.
“The end of the polarization seems to be far away and could exhaust the energies of the new government”, said Lacerda.
The real and the Brazilian stock market benchmark, the Ibovespa, which outperformed other emerging markets in Latin America for most of 2022, had already been impacted by the turmoil in the early days after President Luiz Inacio Lula took office. da Silva due to concerns about rising government spending.
But both the real and the Bovespa index performed better heading into Friday after Lula promised the country could grow by keeping the government’s finances in check.
Still, some analysts said any negative market reaction could be short-lived. “Given that the situation appears to be under control in Brasilia, I expect any impact on the asset class to be short-lived,” said Alejo Czerwonko, chief technology officer for Emerging Markets Americas at UBS Global Wealth Management.
Carlos Eduardo Furlanetti, a professor at the FIA Business School, predicts that a strong reaction from institutions, including the National Congress and the STF, supporting the president could even help the Lula government politically in the medium term.
Bruno Komura, an analyst at Ouro Preto asset manager, expects a bad initial reaction in the markets, with interest rates rising and the exchange rate and the stock market falling. But Komura foresees a recovery of the markets until the end of the week, considering a strong institutional reaction against the invaders.
Carla Argenta, chief economist at CM Capital, points out that Bolsonaristas were helped by weak law enforcement in the Federal District, something that did not happen in the Capitol and that increases the perception of political risk in the country. But this can be reversed if the institutions show unity against the invaders of Brasília, she added.
Enrico Cozzolino, partner at asset manager Levante Investimentos, said the acts show a strong division in society. “We have seen the lack of consensus since the impeachment of former President Dilma Rousseff.”
While large sectors of the national banking sector tend to support Bolsonaro due to his free-market credentials vis-a-vis Lula’s Workers’ Party (PT), the sector’s main industry association strongly condemned Sunday’s violence. Isaac Sidney, head of Brazilian banks’ representative body Febraban, called for a “firm reaction” against the actions.
Source: CNN Brasil
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