- Title: BRAZIL-ELECTION/ECONOMY Brazilian markets volatile after Rousseff's reelection
- Date: 28th October 2014
- Summary: RIO DE JANEIRO, BRAZIL (FILE) (REUTERS) INSIDE OF A FACTORY A WORKER BEHIND A MACHINE BRAZILIAN MONEY BEING COUNTED AT A SHOP TILL
- Embargoed: 12th November 2014 12:00
- Location: Brazil
- Country: Brazil
- Topics: General
- Reuters ID: LVAAQKQPZ1BPTUYJMQ9CMYRZDBWT
- Story Text: Brazil's benchmark Bovespa stock index gained 2 percent on Tuesday (October 28) after having fallen in the wake of President Dilma Rousseff's reelection which dashed investor hopes of significant policy changes over the next four years.
Brazil's real closed at a 9-1/2-year low on Monday (October 27), falling 2.6 percent to 2.5223 per U.S. dollar.
Local stocks pared losses after a sharp opening drop, though shares of heavyweight state-run oil firm Petrobras posted their biggest one-day decline in nearly six years.
Rousseff's victory speech acknowledged the calls for change, indicating a recognition too of the very tight win of 51.6 percent of votes over the 48.4 won by the market-favourite Aecio Neves.
"I will take urgent action to focus on the economy in order to return to our rhythm of growth, to continue to guarantee high levels of employment, and maintain the rise in salaries," Rousseff declared on Sunday (October 26) after the news of her second term.
This was followed by announcements on Monday of economic reforms to be put into place in November, after broad discussions with industrial and financial leaders - promises which helped to stimulate a slight boost in markets on Tuesday.
Speculations regarding replacements for the outgoing Finance Minister Guido Mantega also helped to lift spirits on Tuesday.
The reelection was won largely on support from those pleased with the Workers' Party's achievements in social policy, lifting some 40 million from poverty in the last 12 years.
According to economist Gilberto Braga, Rousseff's challenge now will be to regain the trust amongst the financial sector, which will be crucial in determining whether these flagship social programmes can continue.
"The message from the polls was that the government must keep its social programmes in place, pulling people out of poverty and improving quality of life, but at the same time, there must be a focus on how to generate the resources for these programmes, and therefore, create conditions which will stimulate investment, control inflation and look after public money," Braga told Reuters TV.
Doubts were fed on Monday afternoon when Mantega offered a rosy assessment of the Brazilian economy and said the election "shows that the population approves of the economic policy we are practicing."
Most investors are betting the Brazilian currency will weaken over the next few years as U.S. Treasury yields rise and Brazil tries to boost industry competitiveness.
"What happened in relation to the Brazilian real just one day after the election represents a lack of trust amongst the financial sector in Rousseff's ability to transform the economy in her second term. This also pushed up the dollar against the Brazilian real," Braga explained.
Rousseff's economic policies have been roundly criticized by investors for tipping Brazil into a recession while damaging state-run companies such as oil producer Petroleo Brasileiro SA , known as Petrobras, and lender Banco do Brasil SA along the way.
Preferred shares of Petrobras fell as much as 15.6 percent at the open, easing to an 12.33 percent loss by the close. Still, it was the stock's biggest one-day loss in nearly six years.
Petrobras' share price has suffered under Rousseff's government due to a policy that holds down domestic fuel prices in order to help relieve inflation.
"She will most probably have to carry out reforms," said Braga. "Firstly she will have to create internal reforms, in order to restore confidence amongst the global financial markets and the national business sector, which have little trust in the current Finance Minister, Guido Mantega, who has already announced he will step down before next year. So at the moment, the market is in a very unstable condition, with a lot of speculation as to who will be the next Finance Minister in charge of the Brazilian economy."
Investors hope a more market-friendly finance minister can help restore fiscal discipline, bring transparency to the federal budget and better engage with business leaders.
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