Like Stocks, Political risk is rising in Temer’s Brazil

Presiding over Brazil after the political crisis that ousted former President Dilma Rousseff from power was likely to be uneasy. Michel Temer, who replaced Rousseff in September 2016, knows this very well now that the approval by the Senate of a 20-year unpopular austerity plan has prompted angry protests across the country that suffers from both a stalled economy with -3.8% GDP growth in 2015 and ongoing rampant corruption and crime.

After a 2-year recession, and in line with a previous forecast by Cyceon, Brazil should probably undergo higher than usual political risk for several years as direct fallout from Rousseff’s impeachment that’s been interpreted as a coup by many of her partisans – and they are many. Instead of seeking “reconciliation,” Temer has opted for a tough anti-corruption campaign. Brazilian police is said to be seeking new charges against former President Lula for irregular acquisition through his think tank while José Yunès, an adviser to Temer, has just resigned amid reports of corruption.

However, the latest developments – including the increasing risk of Temer falling too as more than half of the Brazilians now disapprove his policies – have proved a very good medium term bet for investors given that the Brazilian stock market index (IBOVESPA) has jumped 34.2% up to 64,100 points so far this year after dropping to a 7-year low under 40,000 points in January 2016 for the first time since March 2009.