Ibovespa Pricier Than Peers as Real Approaches 200-Day Average

  • Traders pile into Brazil assets amid impeachment speculation
  • Cost of protecting nation's bonds against nonpayment decline

Last week’s rally in Brazilian assets made the Ibovespa more expensive than its emerging-market peers and put the real on the brink of crossing a technical indicator that’s seen as a harbinger of more gains.

Brazil’s stocks extended their surge into a bull market on bets that the push to impeach President Dilma Rousseff will build -- a step that many investors hope would end the gridlock in the capital -- after former President Luiz Inacio Lula da Silva was briefly detained as part of a sweeping corruption probe. The equity gauge’s valuation is now about 9 percent above the multiple for developing-nation stocks while the gap to shares in advanced economies is the narrowest since May.

“With investigations zooming in around Lula and Dilma, investors are betting that we may see a big turnaround in politics,” said Joao Pedro Brugger, a money manager at Florianopolis, Brazil-based Leme Investimentos, whose hedge fund Leme FIC FI Multimercado Credito Privado has outperformed 89 percent of peers this year. “It’s all about politics, and every day brings a new surprise.”

The political turmoil in Brazil has made it tougher for Rousseff to gain congressional support for measures aimed at shoring up the budget and reviving growth at Latin America’s largest economy. The deepest recession in a century and burgeoning budget deficit cost the nation its investment-grade rating.

The real also soared as impeachment speculation mounted. It advanced 6.6 percent against the dollar last week and trades near the 200-day moving average, a technical indicator that, if crossed, could be a sign of more gains to come. Still, it declined 1 percent to 3.7932 per U.S. dollar as of 1:45 p.m. in New York.

Meanwhile, the cost of protecting Brazil’s bonds against nonpayment using five-year credit-default swaps fell the most in the world last week.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE