Rousseff impeachment

A commodities slump, an economic downturn, a corruption scandal. Just when you thought it couldn’t get worse, it did. Impeachment proceedings will begin against Brazil’s president Dilma Rousseff after the country’s lower house accepted a plea for the same.

Except for the commodities slump, the factors mentioned above, along with a suspected violation of fiscal laws, are responsible for the impeachment’s being initiated.

As Brazil’s Situation Worsens, What about Your Mutual Fund?

What does this mean for Brazil, and more specifically, Brazil-focused mutual funds? We’ll take a look at where Brazil stands as of now economically, financially, and politically. But first, let’s take a look at what this move means.

Not a straightforward process

Impeaching a head of government or state is not a straightforward process. Rousseff is primarily being accused of tampering with budget deficit numbers for 2014 and 2015. There are accusations that Rousseff received kickbacks from Petrobras (PBR) for her reelection campaign as well.

The plea for impeachment will be put to a special committee that will decide whether the process should go ahead. This will then be put to a vote at the lower house, and if two in three members approve of the proceedings, then a hearing will begin.

During these hearings, the vice president will head the government. If cleared, Rousseff will return. If not, the vice president will continue as the head of the government.

Reforms on the back burner

Reforms being put on the back burner is the first clear implication of impeachment proceedings. Rousseff and Brazil’s finance minister Joaquim Levy had worked hard to convince members of Brazilian congress of the need for economic reforms, including the CPMF, a tax on financial transactions.

This reform and others will take a backseat, with Rousseff focusing her energies on her defense. This is not good for Brazil, which was downgraded to junk status by Standard & Poor’s in September 2015.

Investors in Brazil-focused mutual funds (BDERX) and ADRs (American depositary receipts) such as Vale (VALE), BRF (BRFS) and Banco Bradesco (BBD) need to be wary of these developments. Investors may consider realigning their portfolios according to their risk appetite and the investment horizon.

We’ll look at Brazil’s budget balance in the next article.

Latest articles

19 Jul

Afya's IPO Sees Strong Listing Gains

WRITTEN BY Mohit Oberoi, CFA

Afya (AFYA) listed on the Nasdaq Global Select Market on July 19. The company priced its IPO at $19 per share.

19 Jul

What to Watch For in Amazon's Q2 Earnings

WRITTEN BY Sanmit Amin

e-Commerce giant Amazon (AMZN) is scheduled to report its second-quarter earnings results after the closing bell on July 25.

19 Jul

Barrick Gold Reaches Deal to Buy Acacia Mining

WRITTEN BY Anuradha Garg

After a long standoff, Barrick Gold (GOLD) and Acacia Mining (ABGLF) have reached an agreement.

19 Jul

Comcast Shares Pop on Goldman's Optimism

WRITTEN BY Ruchi Gupta

Comcast (CMCSA) shares popped after Goldman Sachs issued a positive note on the company recently. Goldman upgraded its rating for Comcast to "buy" from "hold."

19 Jul

Why Analysts Are Bearish on Netflix Stock

WRITTEN BY Aditya Raghunath

Netflix stock fell over 10.0% on Thursday and is down 0.5% today as well.

On Thursday, pet retailer Chewy (CHWY) reported its first-quarter results after the market closed. The company reported its earnings for the first time.