Brazilian Stocks Jump to Record as Lula's Conviction Upheld

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Brazil Court Unanimously Upholds Lula Conviction

The Ibovespa rose to a record high, pushing gains this year to more than 9 percent, after a Brazilian appeals court unanimously upheld a graft sentence against former President Luiz Inacio Inacio Lula da Silva, likely preventing the front-runner in presidential opinion polls from seeking election this year.

The index climbed as much as 3.7 percent, surpassing 83,000 for the first time, as 60 of its 64 member stocks rose. Among the top contributors to the advance were retailers Magazine Luiza and Via Varejo, poised to benefit from an economy that is expected to grow 2.5 percent in 2018, according to a Bloomberg survey. State-owned companies including utility Centrais Eletricas Brasileiras, Banco do Brasil and Petrobras also rallied.

The trial will be a “major upside trigger” for Brazilian assets, said James Gulbrandsen, a Rio de Janeiro-based money manager at NCH Capital, which oversees $3.5 billion.

“The Brazilian economy is already in major recovery mode,” Gulbrandsen said. “The first movement will be flows into Ibovespa futures, but domestic economy-related companies will roar past the market once dedicated small and mid cap flows overtake large cap flows.”

The Brazilian real strengthened the most since May 2017, trading below 3.15 per dollar. The cost of insuring Brazilian bonds in the credit-default swaps market for 5 years narrowed by more than 5 basis points.

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(Updates with conviction upheld in first paragraph.)
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