uploads///Quarterly Returns by Ibovespa in Brazilian Real Terms

Domestic Investors Partake in the Action in Brazilian Equities


May. 16 2016, Published 2:53 p.m. ET

Impeachment is good news for Brazilian stocks

Brazilian stocks (GGB) (VIV) (VALE) have had a tremendous 2016 so far. Prior to what has turned out to be a difficult May, the Bovespa Index rose 24% in Brazilian real terms until April 2016. Even though commodity prices significantly impact Brazilian stocks, the rise has been driven by news in favor of Dilma Rousseff’s impeachment trial. Any news of stalled progress on that front would be detrimental to equities.

The energy (EBR) (ELP) and financial sectors, especially banks (ITUB) (BSBR), have led the rally. However, some stocks have fallen so far in 2016. Among those companies whose shares are listed on US exchanges, Embraer (ERJ), Braskem (BAK), and Fibria Celulose (FBR) have had a terrible year so far.

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Domestic investors are getting in on the action

While foreign investors have been pouring money into Brazilian stocks and have helped equities to rise, domestic investors have just begun partaking in the action. According to a monthly report by BM&F Bovespa, 8.2% of the total value traded in April 2016 was by individual investors.

While Rousseff has stepped down from office, the ouster is only temporary for now. It will take up to six months for the impeachment trial to determine whether or not she will be impeached. Until such time, the focus will return to the governance of Brazil. If Rousseff’s impeachment goes through, it will provide another pop to Brazilian equities, though the impact may be smaller than the one that led up to the impeachment vote on May 12.

This rally has also had an impact on fund investment (ELAAX) (SLANX) in Brazil. Let’s briefly look at that in the next article.


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