Lewis Braham – Barron’s, 11/1/2014
Want proof that investors behave irrationally? Look no further than Brazil. In recent weeks, Brazilian stocks have gyrated wildly, based merely on polls as to which presidential candidate—left-wing incumbent Dilma Rousseff or right-wing challenger Aécio Neves—would win. Meanwhile, the financial outlook for Brazil’s businesses largely hasn’t changed.
The so-called Dilma dump seems ridiculous in retrospect. During this year’s second quarter, the iShares MSCI Brazil Capped exchange-traded fund (ticker: EWZ) gained 8.2%, largely on hopes that Rousseff would be ousted. Then, in the third, it fell 9% as she gained in the polls. Then it bounced around like a yo-yo during the elections, gaining 4% on Friday, Oct. 24, with a Neves poll bump, and falling 5% on Monday after Rousseff was victorious.
The question is: How much damage can Rousseff do that investors aren’t already aware of? Her Workers’ Party has been in power for 12 years. Rousseff merely perpetuated many of its pre-existing social-welfare policies during her first term, and these have largely been successful. They are credited with lifting 40 million people—about a fifth of Brazil’s population—out of poverty in the last decade. Meanwhile, this September’s 4.9% unemployment level was a record low for the country.
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