Tags: Brazil | Markets | Pro-business | Candidate

Brazil Markets Soar as Pro-business Candidate Makes Runoff

Monday, 06 October 2014 04:59 PM

Brazilian financial markets closed sharply higher on Monday after a pro-business candidate unexpectedly surged to a strong finish in Sunday's election, potentially reframing the economic debate in what is expected to be a tight runoff against leftist President Dilma Rousseff.

The benchmark Bovespa stock index posted its biggest one-day rise in more than three years, while the real strengthened firmly against the dollar.

Aecio Neves of the centrist Brazilian Social Democracy Party made a dramatic late move from third place in opinion polls to finish with 33.6 percent in a first-round vote, trailing Rousseff's 41.6 percent share of the votes. They will face each other in second-round runoff on Oct. 26.

Investors blame Rousseff's heavy-handed economic policies for failing to keep inflation on target and driving Latin America's largest economy to a near halt in 2014.

Opinion polls showing Rousseff had gained momentum ahead of the Sunday vote had caused Brazilian stocks to plunge about 12 percent over the past 30 days, with the real sinking to its weakest level in nearly six years.

Neves, a market darling, had been trailing center-left environmentalist Marina Silva for second place through most of the campaign and was all but written off just a week ago. When markets closed on Friday, most investors expected Rousseff to receive twice as many votes as the runner-up.

The rally "reflects a much tighter race and (the possibility) that an opposition victory could be much more market-friendly under Aecio as opposed to ... Marina Silva," said Siobhan Morden, head of Latin America strategy at Jefferies in New York.

Investors were also stepping up bets on the potential for a more market-friendly Rousseff administration as Neves' late surge was seen as an sign that a large number of Brazilians want current economic policies to change, analysts said.

The real closed at 2.4259 per dollar, 1.46 percent stronger for the day. Last week, the currency had weakened past 2.5 per dollar for the first time since late 2008 as investors grew jittery about Rousseff's re-election prospects.

The central bank considers that its program of intervention in the foreign exchange market remains adequate to mitigate an expected surge in currency volatility over the next few weeks, a senior source on Rousseff's economic team told Reuters.

The benchmark Bovespa index rose as much as 8 percent in early trading and closed 4.7 percent higher at 57,115.90 points.

Shares of state-run oil company Petroleo Brasileiro SA soared more than 11 percent, their biggest gain in nearly six years. State-run lender Banco do Brasil SA jumped 11.9 percent, also their biggest rise since late 2008.

Petrobras, as the oil company is commonly known, is forced by Rousseff's government to sell fuel at a loss in the domestic market while Banco do Brasil was made to lower interest rates to help boost flagging consumption.

Analysts warned that markets will remain volatile in the next few days as investors await new opinion polls and political deal making.

"Despite their questionable ability to accurately predict the first round, opinion polls will inevitably continue to grab the market's attention in coming weeks, if now with a grain of salt," wrote BNP Paribas' Nader Nazmi in a client note Monday.

Third-place finisher Silva still has a strong following among voters frustrated with 12 years of Workers' Party rule. On Sunday, she stopped short of backing Neves, but many analysts expect that most of her supporters will not shift their vote to Rousseff.

© 2019 Thomson/Reuters. All rights reserved.

   
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Brazilian financial markets closed sharply higher on Monday after a pro-business candidate unexpectedly surged to a strong finish in Sunday's election, potentially reframing the economic debate in what is expected to be a tight runoff against leftist President Dilma Rousseff.
Brazil, Markets, Pro-business, Candidate
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2014-59-06
Monday, 06 October 2014 04:59 PM
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