Market comment: Brazil’s president charged with corruption

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Michel Temer, Brazil’s president, was formally charged with corruption yesterday. Political turmoil in Brazil is one of the reasons to maintain a neutral stance on the Latin-American region as a whole, says Maurits Heldring, equity expert at ABN AMRO.

Brazil’s prosecutor-general Rodrigo Janot, one of the driving forces behind the ongoing ‘Car Wash’ corruption probes, yesterday filed charges against President Michel Temer. According to the indictment, Temer accepted a BRL 500,000 (circa EUR 133,000) bribe from an executive of JBS, Brazil’s largest meatpacking firm. The Brazilian president is also being investigated for obstruction of justice and membership of a criminal organisation, but so far, no charges were pressed related to these allegations. The case against Temer marks the first time in modern history that a Brazilian president is indicted for corruption. Temer himself has always denied any wrongdoing.

Yesterday's news broke after the market close. Today, the Brazilian Bovespa Index is only slightly lower; the Brazilian real dropped by around 1.5% versus the euro. Maurits Heldring, equity expert at ABN AMRO Private Banking, believes that the Brazilian equity market is currently in wait-and-see mode: “In May, the news that President Temer allegedly took bribes from JBS sparked a sell-off in the Bovespa Index. The market stabilised somewhat since then, but we haven’t seen any significant recovery.”

It remains to be seen, whether President Temer will actually stand trial. The case can only go to court if two-thirds of the lower house of the Brazilian Congress approve. For Heldring, Brazil’s political turmoil is one of the reasons to maintain a neutral equity stance on Latin America: “Brazilian and Mexican equity indices represent the most important stock markets in Latin America. As far as Mexico is concerned, it is unclear what the impact of Trump’s trade and tax plans will be. In Brazil, political uncertainty remains high. Even if the case against Temer goes to court, the outcome is unsure. We therefore believe a neutral stance on Latin America remains warranted. In emerging markets, we prefer Asia instead.”

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