Brazil: increased political risk should affect country assets, say economists
In the weeks leading up to the presidential elections, some strategists, economists and political scientists warned of the risks of a possible “third round”. It was a reference to a scenario of contestation of the results of the polls, increasing uncertainties to invest in the country.
It was a warning given, for example, by Silvio Cascione, director for Brazil at Eurasia, one of the most respected political risk consultancies in the world, at the Bloomberg Línea Summit in September.
This risk, which seemed discarded in the last two months, mainly after an inauguration ceremony for President Lula da Silva that passed without incident, returned to the radar with the episodes of this Sunday (8).
The invasion and depredation of the buildings of the 3 Powers in Brasília – Federal Congress, Federal Supreme Court (STF) and Planalto Palace – by demonstrators who were protesting against Jair Bolsonaro’s defeat and against Lula da Silva’s victory at the polls may revive an unpredictability that goes beyond economics.
In the United States, the equally unprecedented invasion of the Capitol in Washington by supporters of then-President Donald Trump in January 2021 did not prevent the S&P 500 and Nasdaq from maintaining the record sequence in the following days. But that was a favorable bull market moment.
The response in the Brazilian market will be known from this Monday (9th), but also in the next few days, through the indices that best reflect the risk of investing in the country.
THE (PRELIMINARY) VISION OF THE MARKET
“The markets and the economy are unlikely to emerge unscathed. Bloomberg Economics’ model suggests that an increase in political uncertainty around levels from an April 2017 peak could weaken the real by 1.8%, push equity prices down by 3% and cut around 0.7%. percentage point of January economic activity,” said Adriana Dupita of Bloomberg Economics.
For Luís Otávio Leal, Chief Economist at Banco Alfa, “the fact will retract foreign investors at first and is reason to think that the opening [Monday] will be very bad”.
According to Leal, the violent acts against the Power “put in check the notion of a peaceful transition and could affect the confidence of foreign investors in the country”.
The duration of the impact of the acts on the economic environment will depend, in the economist’s assessment, on the identification and accountability of the protesters.
For economist André Perfeito, citing a scenario of doubts about the authority of the country and what he describes as “the silence of the military”, “it is reasonable to assume that the perception of risk will rise and, thus, interest rates should rise with effects on the stock market and other assets”.
“Probably the situation will be overcome, but it will be tense days in the markets and in the nation until the Planalto restores order and the military takes a stand for good,” he said.
With information from Bloomberg
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