Brazilian stocks jump after former president Lula is convicted of corruption – CNBC

This post was originally published on this site

Brazilian equities spiked higher on Wednesday after a court convicted former President Luiz Inacio Lula da Silva of corruption.

The iShares MSCI Brazil Capped exchange-traded fund (EWZ) closed 2.98 percent higher after Lula’s conviction. The Bovespa index, Brazil’s benchmark stock index, also jumped, trading 1.6 percent higher.

EWZ intraday

Source: FactSet

Lula, who was elected as Brazil‘s president twice, was sentenced to nine and a half years in jail, making him the highest-profile casualty of “Operação Lava Jato” (Operation Car Wash), a sweeping corruption investigation that has rattled Brazil.

Since its start in 2014, Operation Car Wash has led to hundreds of arrests. It also led to Dilma Rousseff’s ousting as Brazil’s president last year. Rousseff succeeded Lula in 2011.

The operation has also implicated Brazil’s current president, Michel Temer. On May 17, Brazilian newspaper O Globo reported that Temer gave his blessing to an attempt to pay a potential witness to remain silent in the country’s biggest-ever graft probe.

O Globo’s report led to the Brazilian stock market plunging, with the EWZ shedding 16.3 percent. The report also led to Temer being formally charged with corruption on June 26.

Larry McDonald, head of the U.S. macro strategies at ACG Analytics, said in an email investors should be cautious Brazilian equities short term, but noted they are a long-term buy. “They’re still very cheap,” he said.

Lula was one of the most popular Brazilian politicians in recent memory. Former U.S. President Barack Obama once labeled him the most popular politician on earth. When he left office, Lula had an 83 percent approval rating.

The former union leader won global admiration for transformative social policies that helped reduce stinging inequality in Latin America’s biggest country.

—Reuters contributed to this report.