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Brazilian Real Drops as Political Risk Returns

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Brazilian real falls on increased speculation about government’s plan to end corruption

On Monday, May 23, 2016, at 1:30 PM EST, Latin American markets were trading on a mixed note, as crude oil prices fell by more than 1%. The Brazilian real depreciated on the release of recordings of planning minister Romero Juca, as they raised questions about the new government’s plan to end corruption. He was recorded discussing how to end the nation’s graft probe (or the “Carwash”) corruption investigation. With political tension back in the arena, the country’s equity markets saw an outflow of funds.

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The Brazilian BM&F Bovespa SA and the Argentinian Merval Index fell 0.53% and 0.89%, respectively. The fall in global crude oil prices and other essential commodities didn’t damp the sentiment in the Colombian COLCAP Index, which traded 0.28% higher. Colombia depends heavily on crude oil prices, which directly impact its export revenues. Among the Latin American indexes, the Mexican IPC index rose 0.3%. The Chilean IPSA Select Index was trading 0.23% higher.

Mexican retail sales rise

Mexican retail sales rose past expectations in March, growing by 3.0% on a monthly basis against expectations of flat growth and a marginal increase of 0.2% in February. On an annual basis, retail sales in Mexico increased by 6.4% in March versus estimated forecasts of a 5.1% growth.

Impact on the market

Among the Latin America–focused ETFs, the iShares MSCI Brazil Capped ETF (EWZ) fell 2.5% on May 23, which was in sync with the fall in the real. The iShares MSCI Mexico Capped ETF (EWW) was trading 0.64% lower as of 2:00 PM EST.

Mexico, Colombia, Chile, and Brazil are closely linked to crude oil and commodity prices. The PowerShares DB Commodity Tracking ETF (DBC) fell 0.55%.

On a broad-based level, the iShares Latin America 40 (ILF) fell 1.1%. The iShares MSCI Emerging Markets (EEM) was trading flat.

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