Brazilian markets see new volatility after Bolsonaro supporters storm capital

MEXICO CITY/SAO PAULO, January 9 (Reuters) – Brazilian assets could be hit by fresh volatility on Monday after supporters of former President Jair Bolsonaro stormed key government buildings, following the January 6, 2021 US uprising, analysts said.

Footage of Sunday afternoon’s coordinated invasion, which overwhelmed law enforcement and left the Supreme Court building and other sites with severe internal damage, shocked onlookers, including those from the financial sector.

Ricardo Lacerda, founder and CEO of Brazilian investment bank BR Partners (BRBI11.SA), said he expects markets to react with volatility in the near term, especially on Monday, given higher institutional risk. “The end of polarization appears to be far and may drain the energy of the new administration,” said Lacerda.

Brazil’s real currency and its benchmark Bovespa stock index, which have outperformed other emerging markets in Latin America for most of 2022, have already been hit by concerns about increased government spending.

But the real and Bovespa outperformed on Friday after Lula said the country can grow while public finances remain under control.

Still, some analysts said any negative market reaction could be short-lived. “As the situation in Brasilia appears to be under control, I expect the asset class impact to be short-lived,” said Alejo Czerwonko, CIO for Emerging Markets Americas at UBS Global Wealth Management.

Carlos Eduardo Furlanetti, a professor at the FIA ​​Business School, expects that a strong response from the institutions, including Congress and the Supreme Court, that support the president could even help Lula’s government politically in the medium term.

Bruno Komura, an analyst at asset manager Ouro Preto, expects a poor initial reaction in the markets, with interest rates rising and currencies and stock markets declining. But Komura expects markets to recover by the end of the week, anticipating a strong institutional backlash against the rioters.

Carla Argenta, chief economist at CM Capital, points out that the Brazilian rioters were aided by lenient law enforcement in Brasilia, something that did not happen in the US Capitol and adds to the country’s perception of political risk. But that could be reversed if the institutions show unity against Brasilia’s invaders, she added.

Enrico Cozzolino, a partner at asset manager Levante Investimentos, said the actions showed sharp divisions within society. “We have seen the lack of consensus since the impeachment of former President Dilma Rousseff.”

While large swaths of Brazil’s banking sector tend to support Bolsonaro given his free-market credentials vis-a-vis Lula’s Workers’ Party, the industry’s main trade association flatly condemned Sunday’s violence. Isaac Sidney, head of banking sector group Febraban, called for a “strong response” to the actions.

Reporting by Carolina Pulice in Mexico City, Tatiana Bautzer in Sao Paulo and Rodrigo Campos in New York; edited by Diane Craft

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