What happened

Less than a week after Brazilian stocks plunged on COVID-19 fears, combined with a political crisis surrounding the Brazilian president, today some of these very same stocks are rebounding (all figures as of 2:30 p.m.):

  • Steelmaker Companhia Siderurgica Nacional (SID 1.77%) is up 12.2% and airplane builder Embraer Brazilian Aviation (ERJ 1.72%) is rising 11.5%.
  • Electric utility Companhia Energetica de Minas Gerais (CIG -0.40%) gained 10.3%, and airline Azul S.A. (AZUL 1.56%) is up 16%.
  • And bankers Banco Bradesco (BBD) and Banco Santander Brasil (BSBR 0.18%) are up 11.7% and 14.5%, respectively.
Brazilian flag

Image source: Getty Images.

So what

Why are Brazilian stocks rebounding? The answer will probably surprise you: Brazil appears to be getting ready to impeach its president.

As The Washington Post reports today, Brazilian Supreme Federal Court Justice José Celso de Mello Filho has authorized Attorney General Augusto Aras to conduct a 60-day investigation into alleged corruption and obstruction of justice by President Jair Bolsonaro. Outgoing justice minister and anti-corruption crusader Sergio Moro had accused the president of firing his chief of federal police for failing to quash investigations into alleged embezzlement by the president's own sons, sparking Moro's own resignation.

Now the machinery has been set in motion to investigate these charges and potentially dig up enough evidence to justify an impeachment of the president.  

Now what

Why would investors think this is good news? Turns out, Bolsonaro's popularity after being elected just two years ago has largely evaporated in the face of the rapid spread of COVID-19 across Brazil -- 57% of Brazilians polled now support the president's impeachment.

Acceding to the will of the people is probably a good thing in any country. In Brazil, in this case, it also holds out the prospect that the country will take more-determined action to halt a devastating pandemic -- and perhaps revive efforts to root out corruption among the country's political elites as well.

In the short term, this promises more turbulence for Brazil. In the long term, however, it could be just the medicine the country requires to get its economy back on track.