After the great sell-off of 2015, Brazil’s financial market rebounded strongly in 2016. The launch of impeachment procedures against President Dilma Rousseff in late 2015 helped restore investor confidence, which was further bolstered by the fiscal austerity and structural reforms presented by Michel Temer, interim president since May 2016, and officially inaugurated as president in August. Until Donald Trump’s election, external factors were also playing favourably in all of the emerging markets: China was causing fewer concerns, commodity prices rebounded and the normalisation of US monetary policy was postponed.
Despite a few year-end tensions following Donald Trump’s election and a new outbreak of domestic political turmoil (corruption scandals), the real (BRL) ended up gaining 22% against the USD in 2016 compared to the previous year. The Ibovespa stock index rose 39% in the local currency, while yields on Treasury bonds and CDS premiums on sovereign bonds denominated in foreign currency shrank by 550 basis points (bp) and 140 bp, respectively.
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by Sylvain BELLEFONTAINE