Brazilian assets surged, led by a jump in state oil company Petroleo Brasileiro SA (PBR), after Aecio Neves surprised analysts to take second place in presidential elections, forcing a runoff with incumbent Dilma Rousseff.
Petrobras’s American depositary receipts rose 17 percent to $ 16.33 in early trading at 8:22 a.m. in New York. The IShares MSCI Brazil ETF added 11 percent to $ 48, while the real strengthened 2.7 percent to 2.3949 per dollar. Futures on the Ibovespa stock gauge advanced 8.1 percent to 59,095.
Investors are boosting wagers on the chances of a new government that would bolster growth and rein in intervention in the economy after Rousseff oversaw the slowest economic expansion for any Brazilian president in more than two decades. Neves has pledged to curb inflation that’s above the midpoint of the government’s target and said he would name former central bank President Arminio Fraga as his finance minister to regain investor confidence.
“Neves is seen by the market as the best potential president because he would be able to take measures to boost growth,” Andre Perfeito, the chief economist at brokerage firm Gradual Investimentos, said in a phone interview from Sao Paulo. “But I think we all should be cautious as Rousseff still has a good chance to win.”
The benchmark index for Brazilian equities had tumbled 12 percent since Sept. 2 through last week as voter polls showed increased support for Rousseff. The gauge could rise almost 20 percent from last week’s close to 65,000 should Neves win the runoff vote, according to Geoffrey Dennis, the head of emerging-market strategy at UBS AG.
“The closeness of the result is a surprise,” Dennis, who’s been covering Brazilian stocks since the early 1990s, said in a telephone interview from Boston. He has an underweight rating on the country. “Investors looking for macro change in Brazil would have always preferred to see Neves as the next president.”
Rousseff, of the Workers’ Party, got 42 percent of votes yesterday, compared with 34 percent for Neves, a member of the Brazilian Social Democracy Party. The two candidates will face each other in a runoff election Oct. 26.
Itau Unibanco Holding SA, Latin America’s biggest bank by market value, climbed 11 percent to $ 15.60 in early trading in New York. Banco Bradesco SA (BBD), the region’s second-largest lender, rose 10 percent.
Brazil’s benchmark dollar bond due 2025 rose 1.89 cent to 101.94 cents on the dollar. The yield on local notes due the same year fell 0.37 percentage point to 12.09 percent. The cost to insure the sovereign debt from default with credit default swaps sank 23 basis points, or 0.23 percentage point, to 152 basis points.
A survey last week of economists who cover the country showed the analysts reducing their median estimate for growth this year to 0.24 percent from 0.29 percent, while raising the forecast for 12-month inflation to 6.38 percent from 6.33 percent, according to a central bank report today. Brazil targets inflation of 4.5 percent, plus or minus two percentage points.
“The likelihood that elections might prove to be the trigger for the much-needed shift in policy needed to revive Brazil’s flagging economy is at least greater than a few weeks ago,” Neil Shearing, the chief emerging-markets economist at Capital Economics, wrote in a research note to clients.
Fraga, a Princeton University-trained economist, has been a force in Brazilian finance for the past two decades, having served as chairman of the country’s main stock exchange, founded a hedge fund that was purchased by JPMorgan Chase & Co. and managed funds for billionaire financier George Soros.
Neves, 54, draws his support from voters with higher incomes and more education, polls ahead of the election showed. Rousseff gets most of her backing among lower-income families and cites her success in lifting millions of Brazilian out of poverty.
The challenger received more votes than the 26 percent support he garnered in a Datafolha poll released Oct. 4. Rousseff had 44 percent in the poll that had a margin of error of plus or minus two percentage points. Opposition candidate Marina Silva had 22 percent support in the poll.
“It is a surprisingly strong support for Aecio, and markets will likely react in a bullish way today,” Deutsche Bank analysts including chief economist Robert Burgess, said in an e-mailed note. “All eyes are now on Marina Silva, who stayed neutral in 2010 but could support Aecio Neves this time.”