Brazil's Stocks Enter Bull Market Amid Impeachment Speculation

Is Brazil Headed for an IMF Bailout?
  • Key senator alleging wrongdoing by ruling party: IstoE
  • Real posts biggest advance among world's major currencies

A rally in the Ibovespa sent the stock gauge into a bull market as a news report that a senator alleged wrongdoing by the ruling party fueled speculation that President Dilma Rousseff’s ouster is gaining momentum. The real led world gains.

The stock benchmark extended its increase from this year’s low in January to 26 percent and the real climbed to a three-month high after IstoE magazine said that Delcidio Amaral, the former government leader in the Senate who was arrested in November, allegedly revealed Rousseff’s involvement in a corruption scandal. His attorney has denied he reached a plea bargain to testify. Rousseff’s press office didn’t respond to e-mailed questions about the news report and the market reaction.

Traders have piled into Brazilian shares amid bets that an economic recession and a widening graft probe will reinforce the case for an impeachment of the least popular president in the nation’s modern history. The latest phase in the two-year investigation known as Car Wash has recently targeted senior-ranked members of the ruling Workers’ Party. While markets had been split about whether a Rousseff ouster would be good or bad, many now say it may be the only way out of the political quagmire that’s preventing the government from kick-starting growth at Latin America’s largest economy.

“Traders are betting on the possibility of a change in government happening sooner rather than later,” said Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo. “If there’s really any shocking news, the protests against the government may increase, boosting the chances of an impeachment.”

The Ibovespa rose 5.1 percent to 47,193.39 at the close of trading in Sao Paulo, leading world gains. Lender Itau Unibanco Holding SA contributed the most to the advance, while oil producer Petroleo Brasileiro SA posted the biggest rally since 1998. Steelmaker Usinas Siderurgicas de Minas Gerais SA surged 35 percent. The real added 2.5 percent to 3.7991 per dollar, the most since October. The iShares MSCI Brazil Capped exchange-traded fund extended a four-day increase. The cost of protecting Brazil’s bonds against nonpayment using five-year credit-default swaps fell to the lowest since Nov. 27.

The report by IstoE moved the markets a week after a poll showed Rousseff’s approval rating recovered from record lows as Brazilians reduced support for her impeachment, a process that could take months and involve several votes in Congress.

Brazilians assets also rallied on Thursday even after Brazil’s Supreme Court decided to open a case against lower house speaker Eduardo Cunha, a fierce opponent of Rousseff, increasing pressure for his removal from office. Cunha had opened impeachment proceedings against Rousseff late last year after breaking ties with her administration.

Nine out of 10 groups in the MSCI Brazil Index gained, led by energy shares. Petrobras, as the state-run oil producer is known, surged 16 percent. Steelmaker Usiminas rallied the most on record amid speculation that its board will agree on a capital injection.

American depositary receipts of airline Gol Linhas Aereas Inteligentes SA extended a two-day advance to 75 percent after Brazil this week allowed foreign companies to increase their stakes in local airlines.

Embraer SA plunged the most since 2001 as the planemaker’s guidance for 2016 jet deliveries and profit before certain items fell short of analysts’ estimates. The company also said it may be hit with “substantial” fines in the U.S. as it moves to resolve a probe involving the Foreign Corrupt Practices Act.

Swap rates, a gauge of expectations for interest-rate moves, dropped after Brazil’s central bank kept the benchmark Selic unchanged at 14.25 percent for a fifth straight meeting on Wednesday as the recession has yet to tame double-digit inflation.

Brazil shrank the most in a quarter century last year and no recovery is in sight as shriveling demand and political crisis pummel activity. The prolonged recession has made it tougher for the government to shore up its finances, triggering the loss of the nation’s investment grade rating last year. Brazil’s economy will contract 3.2 percent this year, according to the median forecast from economists surveyed by Bloomberg. They predict the world economy will grow 3.1 percent in 2016.

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