In Selling Brazil, Investors Flee From Market They Once Embraced

  • ‘Temer rally’ under threat as currency, bonds plunge
  • Crisis embroils president once seen as market savior

Brazil Markets Sink Triggering Circuit Breaker

As Brazilian markets tumble amid the latest furor surrounding President Michel Temer, traders are selling one of the best-performing markets of the past year and a half.

Before today, the real had gained almost 20 percent over 18 months, while the benchmark Ibovespa index of stocks jumped 42 percent. The yield on the country’s real-denominated bonds due 2027 tumbled almost 700 basis points since peaking at 16.87 percent in January 2016. The currency plunged more than 8 percent on Thursday, while stocks slid 10 percent before trading was halted. Dollar-bond yields soared.

Brazilian assets are “going to be at heavy risk of further punishment as this news continues to develop, and it’s likely that investors will now develop a risk-off approach to the market,” said Jameel Ahmad, the vice-president for market research at foreign exchange brokerage FXTM.

The country’s currency was the biggest gainer last year among 16 major peers as Temer promised to calm Brazil’s political waters and implement much-needed economic reforms. The currency had depreciated 33 percent the year before, as the government of his predecessor, Dilma Rousseff, struggled to boost the economy while her popularity plunged.

The cost of borrowing for the Brazilian government as measured by the country’s dollar bonds soared as the political crisis developed last year and the country’s credit was cut to junk by the three major rating companies. Yields recovered after Rousseff’s impeachment.

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