FTSE 100: 7859.17 ▲ 80.38 (1.03%)
An alleged corruption scandal involving president Michel Temer (pictured) hit Brazil's currency, the real, and its bond and stock markets this week.
A report that Temer had been secretly recorded authorising ‘hush’ money payments to the former speaker of the house to stop him testifying in the same bribery investigation that brought down his predecessor Dilma Rousseff last year shocked investors.
The MSCI Brazil index plunged nearly 14% in sterling terms in the week to yesterday’s close, according to our exclusive Accumulator table, unwinding some of the big gains made in the past year. Even after this week’s fall the index is up 45% over 12 months.
The concern of investors is that even if Temer avoids being ousted, he will be unable to push through reforms, such as pension changes, that the economy urgently needs. M&G emerging markets bond fund manager Claudia Calich said these looked ‘pretty much dead in the water now.’
Angel Ortiz, manager of Fidelity Funds Latin America fund, said the news was disappointing and was likely to lead to panic selling by some investors. ‘We will be looking for such opportunities to build positions in companies with good business models, in keeping with my investment philosophy,’ he said.
Emerging market debt expert Raphael Kassin said he would stick to the side lines for now. ‘Brazilian soap operas have a strange habit of turning out unexpectedly,’ he told Citywire.
Elsewhere the market mood music darkened this week as US president Donald Trump faced an investigation into the alleged links between his election team and Russia, following his sacking of FBI director James Comey who was pursuing a similar inquiry.
Against the pound the dollar fell and a 2% fall in the US S&P 500 knocked 1.4% off the FTSE World index. The FTSE 100 gained nearly 1% having earlier touched record highs.
Our Accumulator table (link below) is accessible for free for registered readers of this website. It shows the returns in sterling for UK investors from all main stock markets and asset classes over a range of time periods. It also includes performance figures of different types of ‘balanced’ funds so you can compare the performance of your own investments.
You can access the ‘Accumulator’ here.