São Paulo’s “mega holiday” could cause market volatility

Trading on the Brazilian stock market got off to a fraught start this morning, as investors tried to measure the impact of a local government decision to create a “six-day weekend” in São Paulo, starting tomorrow. Mayor Bruno Covas hopes the move will drive social isolation rates up in what is Brazil’s Covid-19 epicenter. São Paulo is also home to Brazil’s stock exchange.

Mr. Covas told CNN Brasil that any activity deemed essential may operate as normal. “It is not a lockdown, it’s a local holiday.”

In moments of deep volatility, a one-second delay could cost investors millions of dollars, nevermind six whole days without trading. Not only would investors be unable to react to market-changing events both in Brazil and abroad, but assets would feel the impact all at once as trading was resumed, which could lead to severe losses in a negative scenario.

After Mr. Covas’ remarks, Ibovespa — Brazil’s benchmark stock index — stood firm in positive territory, rising 0.67 percent to 81,732 points. Meanwhile, the U.S. Dollar — which had hit highs of BRL 5.76 — slowed its rise and was traded at BRL 5.73, after the Central Bank intervened with swap auctions. 

What is not clear about the six-day holiday plan is whether the São Paulo stock exchange will maintain its full operations. A comment request sent by The Brazilian Report had not yet been answered. 

We talked to Pablo Spyer, director of Mirae Asset and board member at the Brazilian association of brokerages, who is involved in negotiating such decisions. “There is a chance we will keep the exchange open tomorrow. The National Monetary Council should manifest itself soon to clarify [the situation] for us. Even if they bring the holiday to May 20, Thursday, Friday and Monday would remain business days.”

For Ilan Arbetman, a stocks analyst at Rio de Janeiro-based Ativa Investimentos, the mega holiday is a “very bad call, because you quickly change the rules in the middle of the game, giving just a small window for investors to protect themselves. For foreign investors, (…) this is yet another sign of risks in investing in the country.”

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UPDATE (1:42 pm): In reaction to the push for a six-day holiday in São Paulo, the Central Bank announced that financial markets all over Brazil will observe the Corpus Christi holiday on June 11, as initially scheduled.

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