By Jay Forte, Contributing Reporter
RIO DE JANEIRO, BRAZIL – Yesterday (Wednesday, May 11th) in anticipation of the Brazilian senate’s vote to continue with the impeachment process of President Dilma Rousseff, the Brazilian real currency closed stronger to the U.S. dollar. The U.S. currency ended the day at R$3.44/US$1 in sales, down 0.6 percent compared to the last trading session. At the time of writing, the real weakened slightly Thursday (May 12th) morning, trading at R$3.454 to the dollar.
The Ibovespa, the main index of the São Paulo Stock Exchange (BM & F Bovespa), had spent the early part of Wednesday going up, but entered negative territory after 2PM. The index ended the trading session with a fall of 0.58 percent to 52,764 points.
In addition to Brazil’s political crisis playing out in the Senate, analysts point out that investors followed the international markets, which operated lower on Wednesday.
In a report released Tuesday (May 10th), the financial markets also saw the international agency Fitch credit rating downgrade the two leading energy companies in Brazil. The state oil company Petrobras had its note lowered from BB+ to BB, considered a speculative grade to investors.
Already Eletrobras, which operates in the generation and transmission of electricity, fell from BB to BB-. The state issued two notes to the market yesterday (May 11th) explaining that the negative evaluation is due to the lowering of Brazil’s credit rating, which occurred May 5th, when the country also fell from BB+ to BB.
With the additional downgrade, Fitch places Brazil at its highest risk level since 2006, and the two other main risk agencies, Moody’s and Standard&Poor’s also lowered Brazil’s ratings last year. Financial advisor and British expatriate living in Rio, Amit Ramnani of Ipanema Wealth, shares his assessment. “We would expect markets to rally in the short term after yesterday’s news given that we are slightly closer to political certainty, in theory.”
Explaining, “Markets tend to react favorably to certainty but we still have an impeachment trial ahead which will no doubt, have a few twists and turns. There are many other global factors at play such as commodity demand and US/European central bank interest rate policy which will affect the Real.”
Ramnani also adds, “On the ground, I speak to many domestic and foreign investors and there is still a lot of fear and inertia in the air. We believe that those willing to accept more risk and commit to a longer investment horizon will reap the benefits albeit with interim volatility. There are plenty of exciting micro opportunities such as commercial real estate and private equity which are relatively more detached from the macro scenario.”