Investors are waiting for political certainty to return to Brazil, opting to wait until the impeachment process of President Dilma Rousseff is over, panelists said at LatinFinance’s 14th Brazil Issuers and Investors Forum (BIIF) in São Paulo this week.

“Certainty is critical,” said Alexei Remizov, managing director of capital financing at HSBC. “Either validate the existing government or set up a new one. One or the other is important to the markets.”

Brazil’s lower house voted on April 17 to begin impeachment proceedings against Rousseff on charges of manipulating government accounts. The process has moved to the Senate, which could vote by mid-May on whether or not to hold an impeachment trial. If the Senate decides to proceed with a trial, Rousseff will be suspended for 180 days, replaced by Vice President Michel Temer.

Rousseff denied the charges and called the impeachment an attempt to stage a coup d’état.

The markets, however, took a different view. The BM&FBovespa stock exchange has rallied as an impeachment trial appears likely, although it dipped almost 1% on the day after the vote in the lower house. 

“The market has already priced in some of the uncertainty,” said Hans Lin, head of investment banking in Brazil for Bank of America-Merrill Lynch.

Lin said local investors tend to be more bearish than foreign investors and he expected markets to remain volatile for the next few months. But there are signs of improvement compared to six months ago, around the time the impeachment request was first presented, he said.

According to Jean-Pierre Cote Gil, head of credit and equity research in Latin America for Western Asset Management, Brazilian corporate issuers once had spreads in line with other emerging market corporates around 400bp. Brazil’s corporates saw spreads jump to around 1,000bp at some point in the first quarter this year and have seen them since retreat to around 750bp. “But they’re still paying 300bp above their peers in the region,” he said.

Cote Gil added that he was concerned about how Brazilian companies will refinance debt due this year. Bank loans represent roughly 70% of corporate debt in Brazil at a time when the bank market and the local capital markets remain restricted, he said.

“Something has got to give,” he said. “We’re going to see an increase in defaults but we’re not going to see record levels.” More losses could come if Brazil’s corporate borrowers just keep extending their debt maturities by two or three years at a time, Cote Gil said.

For Ricardo Florence, chief financial officer at local food processing company Marfrig Global Foods, the impeachment could bring more stability to the market. “There can be a light at the end of the tunnel,” he said.

However, both Remizov and Lin doubted a Temer administration, even if only temporary, would enjoy much of a honeymoon.

“We tend to do things in a crisis and we’re in a crisis right now,” Lin said.

Umberto Conti, a senior manager of investment analysis at local pension fund Funcef, said some optimism has returned to the market, based on the chances for change. But after watching the impeachment vote in the lower house, he said Brazil’s politicians “leave a lot to be desired.”

Renato Abissamra, a partner at Spectra Investimentos, said the current political turmoil provides some cause for hope. “It’s been worse,” he said. “We won’t have a perfect world in the short term but the situation shows that it’s possible.”

Eduardo Alves, associate director of global risk services at Standard & Poor’s (S&P), said the current economic instability will likely continue through the rest of the year, as unemployment rises and inflation struggles to stay in the single digits.

“Brazil is not going to break, but a lot of companies are going to encounter a lot of difficulties and they might break,” Alves said.