Brazil’s Market Gains as Politics Shift

9/9/14
 
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from The Wall Street Journal,
9/9/14:

Hope for Election Victory by Marina Silva, and for Economic Overhauls, Trigger a Rally.

Marina Silva

Investors are piling into Brazilian stocks, adhering to one simple rule: The lower President Dilma Rousseff falls in the polls, the higher share prices go.

Ms. Rousseff has few fans in the investment world, where she is blamed for not doing enough to reverse a prolonged economic slump. Until recently, she looked like a sure bet to win a second term in October elections, but her numbers have slipped against Socialist Party candidate Marina Silva.

That has caught the attention of some investors who had previously steered clear of South America’s biggest economy. “We’ve added to positions in companies that we don’t particularly like because they’re cheap and poorly managed,” said Michael Reynal, a portfolio manager with RS Investments, which oversees about $25 billion. “If there’s any change in government, that would change.”

Mr. Reynal and other investors are essentially betting that a Brazilian government run by Ms. Silva would loosen state control over key sectors of the economy, taking steps such as removing energy-price caps that have fueled inflation and limited profits at Petroleo Brasileiro SA, or Petrobras, the state-run oil giant. Ms. Silva has also voiced support for a more independent central bank, which could lead to a more consistent monetary policy, investors say.

Mr. Reynal recently bought shares in Petrobras as well as Itau Unibanco Holding SA, Brazil’s largest bank.

According to EPFR Global, a data tracker, investors have put a net $293.7 million into funds that buy Brazilian stocks since Aug. 13, when Socialist Party candidate Eduardo Campos died in a plane crash. Polls have consistently showed Ms. Silva, his successor, beating Ms. Rousseff in a runoff. On Tuesday, a poll showed Ms. Silva leading Ms. Rousseff by 45.5% to 42.7%. From the start of the year through Aug. 13, investors had pulled $1.1 billion from Brazilian stock funds.

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