This weekend would be most crucial for future of Brazil as well as recent rally in Brazilian assets. Since late January Brazil’s benchmark stock index, Bovespa has outperformed almost all of its global peers by rising around 30%, making YTD gains around 20%. Similarly Brazilian Real, has rallied around more than 25% since late January. While recovery in oil price is to be thanked partially for the gains, true credit goes to politics. Market has cheered every time, the possibility of impeachment of incumbent president Dilma Rousseff rose.
Now, over the weekend, Brazilian politics face one of the most crucial moment of modern history as lower house goes to vote to decide, whether to vote in favor of her impeachment or against. In recent days, two prominent allies, PMDB and PP parties have left the government coalition increasing the chance that she will be impeached. This week, congressional committee voted 38 to 27 in favor of her impeachment. If she is impeached in lower house and then in Senate, then Ms. Rousseff will have to resign the presidency.
President Dilma has declined any wrong doing and there do exists a possibility that she may not abide by Congress’s decision, accusing of a coup, leading to full blown crisis in Brazil. Even if she abides, there can still be violent protests from her supporters and the government, which could be led by former Vice President Michel Temer would eventually fall. Temer himself may face impeachment as Supreme Court has ordered congress to open impeachment process against him.
There are high possibilities of things getting uglier, before any real improvements.