Brazil Stock Market Gains Not Entirely Political

October 8, 2014

Kenneth Rapoza – Forbes, 10/07/2014

Voters of Social Democrat Aécio Neves might cheer the recent rise in the Brazilian stock market as a testament to his real shot at becoming president, but there is more to Bovespa’s recent 10% gain than politics.

“The election results have had an immediate and strong impact on the market, as we can see, but this is only momentary and has no grounds for support,” says Raphael Juan, a fund manager for BBT Asset in São Paulo. “To think that politics is the savior and whatever candidate wins or loses will make everything wonderful is a grave error for short-term investors.”

Bullish market commentary during the last few days seems centered around the prospect of incumbent Dilma Rousseff’s defeat, and bearish signs centered around her victory. This narrative continued Tuesday with the iShares MSCI Brazil (EWZ) exchange traded fund up another 2.4% in intraday trade. Most news outlets are connecting the bullish Bovespa to Neves’ vote totals, with UBS saying today that he has a 50/50 shot of beating Dilma.

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Brazil’s Election-Day Loser Is Key for Stock Market Bulls

October 7, 2014

Ney Hayashi and Julia Leite – Bloomberg, 10/07/2014

Brazilian stocks have soared 6.4 percent since the first round of presidential elections this weekend. Whether the rally fizzles out or gains momentum may depend most on what the third-place finisher does next.

Aecio Neves’s come-from-behind surge into second place in the Oct. 5 vote propelled him to the second round and spurred bets that a new government will take over after incumbent Dilma Rousseffoversaw the slowest expansion for any president in two decades. To overcome his eight-point deficit in the initial round of voting, he may need the endorsement of one-time rival Marina Silva and her Socialist Party. Silva has decided to support him, newspaper O Estado de Sao Paulo reported, and an announcement may come Oct. 9, Valor Economico said today.

“Most investors had almost forgotten Aecio Neves was part of the race,” Eric Conrads, who helps oversee about $500 million in Latin American stocks at ING Groep NV, said by phone from New York. “Now the question mark is what percentage of Marina votes he’ll get. It’s all about that. That’s key.”

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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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