Ibovespa Bova11 In The Joesley Day (2017) | Stock Market Case Study

Initial market reaction (May 17-18, 2017)

The news of Temer's involvement in the corruption scandal broke on May 17, 2017.

The Brazilian stock market (B3, formerly BM&FBovespa) plunged, with the Ibovespa index losing around 9% on May 18, 2017, its biggest single-day drop in nearly nine years.

Investors feared political instability and uncertainty, leading to a sell-off in Brazilian assets.

Continued market volatility (May-June 2017)

The Brazilian real (BRL) depreciated significantly against major currencies, particularly the U.S. dollar, as investors sought safer havens.

Brazilian stocks and bonds continued to experience volatility and sell-offs, reflecting concerns about the country's political and economic future.

Temer faced calls for his resignation and impeachment, further fueling market uncertainty.

Temporary market stabilization (July-August 2017)

Despite the ongoing political turmoil, the Brazilian stock market showed signs of stabilization in July and August 2017.

Temer managed to avoid impeachment, and investors hoped the government could push through economic reforms.

However, the overall market sentiment remained cautious, and volatility persisted.

Long-term impact and recovery (2018-present)

The Brazilian economy and stock market gradually recovered from the initial shock of the Joesley Day scandal.

Economic reforms, including pension and labor reforms, were implemented, helping to boost investor confidence.

The Brazilian central bank's credible monetary policy and management of inflation also contributed to the market's recovery.

However, the pace of recovery was slower than expected, and the scandal's aftermath continued to weigh on investor sentiment for an extended period.

The Joesley Day scandal was part of a broader series of corruption investigations, collectively known as the "Car Wash" (Lava Jato) scandal, which had already impacted the Brazilian economy and markets before May 2017. The long-lasting effects of these investigations, combined with other economic and political factors, have shaped the trajectory of the Brazilian stock market.

The stock market looked like this in this period:

1) Signs that it would affect the market:

Before Joesley Batista's indictment in May 2017, there were already significant political tensions in Brazil. The impeachment of President Dilma Rousseff in 2016 and the investigations into Operation Lava Jato generated uncertainty about the stability of the government and the economy. Attentive investors should be aware of this heightened political risk environment.

Furthermore, shares of JBS, controlled by the Batista brothers, had already been falling before May 2017, indicating that the market was pricing in risks related to the company.

2) Best time to sell before the crash:

Considering the signs of high risk, a conservative investor could have sold part or all of their positions in Brazilian stock ETFs a few days or weeks before May 17, 2017, the date of the denunciation.

The rationale would be to reduce exposure to a potentially volatile market, especially if the investor has short-term objectives or low risk tolerance.

For more aggressive investors, the optimal time would have been to sell on May 17th, when the news about the JBS/Joesley Batista case was released and caused the biggest daily drop in the Ibovespa so far.

3) Best time to buy before recovery:

After the initial shock, investors should monitor political and economic developments to identify a bargaining moment to rebuild positions.

A possible time to buy could have been a few days/weeks after May 17th when the bear market could have presented value opportunities in stocks and ETFs trading at significant discounts.

The rationale would be to take advantage of the depreciated prices of good companies not directly related to the JBS/Batista case, whose drop could be temporary if the political scenario stabilizes.

Another option would be to wait for more concrete signs of renewed investor confidence, such as the appointment of a credible finance minister or progress in economic reforms, before recomposing positions.

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