Brazil’s too-close-to-call election is pushing volatility on the country’s stocks (IBOV) to the highest in nine years relative to emerging-market peers.
With polls showing support for President Dilma Rousseff and challenger Aecio Neves within the margin of error, price swings are surging. Markets have rallied when surveys show an edge for Neves, who pledges to cut spending, reduce government meddling in state companies and pull the economy out of recession. Stocks have fallen when Rousseff gained in polls, contributing to a 47 percent drop in the Ibovespa in dollar terms during her term, the worst performance among the world’s major equity gauges.
“Brazilian stocks have basically been ping-pong balls,” Jim Chanos,
the founder of short-seller Kynikos Associates LP, said in an interview
on Bloomberg Television yesterday. Stocks are moving “every which way”
based on the outlook for this weekend’s runoff vote in the presidential
election, he said.
The difference between the 90-day volatility of Brazil’s benchmark stock gauge and the MSCI Emerging Markets
Index has climbed 21 percentage points this year to 60.6 percent, the
widest since August 2005, data compiled by Bloomberg show.
Swings on state-controlled oil producer Petroleo Brasileiro SA, which the government has limited from raising fuel prices even as costs jumped, have increased to the highest since at least 2004 against its developing-country peers.
The Ibovespa slumped 4 percent to 52,146.17 at 10:35 a.m. in Sao Paulo today.
Volatility Jumps
The Ibovespa’s three-month volatility jumped to the highest level in two years yesterday after a poll commissioned by the National Transport Confederation showed Rousseff had 45.5 percent of support in the Oct. 26 runoff, compared with 44.5 percent for Neves. The incumbent trailed her challenger by 2 percentage points in two other polls last week. The gap for all three polls were within their margins of error.
Rousseff would get 46 percent of votes in the runoff, a Datafolha poll released late yesterday showed. Neves would gather 43 percent, still statistically tied with the incumbent.
“The polls are shifting
leadership from week to week,” Morgan Harting, a senior portfolio
manager at asset manager AllianceBernstein Holding LP, which oversees
about $473 billion, said in a telephone interview. “Waging heavily on a
particular outcome based on the polls is imprudent.”
First Round
The Ibovespa has led gains or losses among the world’s biggest benchmarks in five of the past 11 sessions since the first round of the election, according to data compiled by Bloomberg. Rousseff won 42 percent of votes on Oct. 5, while Neves pulled off a surprise second-place finish with 34 percent.
Neves has pledged to fuel growth Latin America’s largest economy, which entered a recession for the first time in five years, and slow inflation that’s been above the midpoint of the central bank’s target for 49 consecutive months.
In a televised debate Oct. 19, Neves cited projections for expansion to be less than 1 percent this year and said that the government has mismanaged Petroleo Brasileiro, known as Petrobras. Rousseff defended her economic policies, saying her opponent’s economic outlook was overly pessimistic and her administration has allowed a probe into alleged corruption at the oil producer to proceed without interruption.
Under Rousseff, the government has increased its role in the economy, changing concession rules to lower electricity rates and capping gasoline prices to tame inflation. Rousseff says Neves’s policy of less government intervention would reduce the role of public banks and jeopardize programs to build subsidized housing.
Record Low
The incumbent’s popularity stems from near record low unemployment, strong wage gains and concern Neves could roll back welfare programs that have helped lift 35 million Brazilians out of poverty over the past decade.
“I wouldn’t want to be positioned based on the election going into the weekend,” Sean Lynch, the Omaha, Nebraska-based managing director of global equity research and strategy at Wells Fargo Private Bank, which oversees $179 billion, said in a telephone interview. “You might see a pop if we have a change, but there are still serious issues to address.”
