Is Petrobras Becoming Too Tied to Brazil Elections and Sentiment?

September 23, 2014

Jon C. Ogg – 24/7 Wall St., 09/22/2014

Petróleo Brasileiro S.A. (NYSE: PBR), or Petrobras, is showing how dangerous it can be for one company to be considered such a key market barometer for upcoming elections. With Brazil having tipped from a great emerging market back into a red-tape economy, and now into an economy that keeps weighing social issues over that of domestic and international finance, the question to ask is whether Petrobras is simply becoming too much of a daily barometer for Brazil’s upcoming presidential elections.

As the October 5, 2014, presidential election comes closer and closer, Petrobras shares seem to rise and fall drastically around predictive polling and news flows each day. From an outsider’s view, it is easy to see how and why a socialist-leaning president would be more liked by the bulk of the population — after all, Brazil’s general population is far from wealthy.

The flip side is also easy to see, and that is that international money is not going to flow into a nation that treats capital so poorly. To say that common stock investors of Petrobras are treated poorly in the capital structure would be the understatement of the year. If Petrobras was an international oil giant that acted like most of its large peers in the Americas and Europe, investors would likely flock back into Petrobras (and likely elsewhere in Brazil).

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Silva Aide Outlines Plan to Lure More Investors to Brazil

September 15, 2014

Presidential candidate Marina Silva wants to make Brazil alluring to investors again by improving public finances and giving the central bank more independence, her campaign coordinators said Monday.

Mauricio Rands, one of Ms. Silva’s main economic advisers, said the candidate will adopt “rigorous” fiscal policy and refrain from “putting makeup on public finances.” Critics accuse current President Dilma Rousseff’s administration of using questionable accounting procedures and one-off revenue sources, such as a tax amnesty program last year, to meet its fiscal targets.

Speaking at an event at the U.S.-Brazil Chamber of Commerce, Mr. Rands also highlighted Ms. Silva’s proposal to pass a law creating an independent central bank. The credibility of the Central Bank of Brazil, which lacks the institutional autonomy that most developed countries enjoy, has been questioned by some economists in recent years for letting inflation run too high and for intervening in the currency market.

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Some companies profit as Brazil struggles to secure power

September 11, 2014

Todd Benson and Marguerita Choy – Reuters, 09/11/2014

A small group of energy companies in Brazil are increasing revenues at a time when the country is grappling with its worst power crisis in more than a decade, taking advantage of sky-high prices to sell electricity in the spot market.

Power generators that have managed to produce extra energy in recent months or who aren’t restricted by long-term supply contracts are being rewarded with prices up to six times higher than the average cost on conventional electricity contracts.

At the same time, distributors that had to resort to the short-term market to fulfill demand increases are facing financial burdens and are being rescued by the government. The situation underscores the imbalances of the Brazilian power system, which has come under stress because of a prolonged drought. The energy crunch has also become a hot topic in Brazil’s presidential race, with the government facing criticism for not ensuring a stable power supply at reasonable prices.

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Brazil’s Market Gains as Politics Shift

September 10, 2014

Matt Day – The Wall Street Journal, 09/09/2014

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.”

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Brazil needs to keep pace with rise of “China 2.0″

September 9, 2014

Ji Ye (Xinhua) – English.people.cn, 09/09/2014

Brazil needs to develop a strategic vision in order to cooperate with China in a new era, said Marcos Troyjo, a Brazilian economist and co-director of the BRICLab at Columbia University, in a recent exclusive interview with Xinhua.

According to Troyjo, the way China’s economy progressed over past 30 years following thecountry’s reform and opening-up policies is called “China 1.0.”

During that period of time, China took advantage of public-private partnership, cheap workforce and a favorable approach to foreign capital to become the largest manufacturing park in the world. According to Troyjo, China has now entered a new stage, which he calls “China 2.0,” and itshould no longer rely on governmental investment and foreign trade to simulate its economic development.

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Market Reduces Brazil Growth Forecast After Weak 2Q

September 2, 2014

Kenneth Rapoza – Forbes, 09/01/2014

Brazil’s back-to-back economic contraction in the first and second quarters now has the nation’s top banks reducing their year-ending GDP forecast to a whopping 0.52%. This is the 14th consecutive week that economists reduced their forecasts for Brazil’s economy.

Last week, the Central Bank’s Focus survey had GDP growth ending 2014 at 0.7%. The survey comes out every Monday.

The decline comes on the heels of a poor showing in the second quarter. The economy contracted 0.6% from the first quarter, which had also contracted, putting Brazil in a technical recession. Compared with the second quarter of 2013, Brazil’s GDP slipped 0.9%.

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U.S. World Cup Love Prompts Brazil to Shift Olympic Ads

August 28, 2014

Bill Faries – Bloomberg, 8/28/2014

American enthusiasm for soccer’s World Cup prompted Brazil to shift more of its advertising toward the U.S. ahead of the 2016 Olympics in Rio de Janeiro, the head of Brazil’s tourism agency Embratur said.

U.S. citizens represented just over 10 percent of the 1.04 million foreign visitors to Brazil during the month long tournament that ended July 13, Embratur President Vicente Neto said in an interview. That made the U.S. the second-biggest source of foreign fans after neighboring Argentina, whose team made it to the final against Germany.

“It exceeded all our expectations,” Neto said in Miami last week. “We’re expecting that to be the same with the Olympics, given the U.S. history and participation in the Games.”

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