Brazil's Silva winning over investors in presidential race

Reuters
Brazil's Socialist Party presidential candidate Marina Silva attends a campaign rally in Sao Paulo
.

View gallery

Brazil's Socialist Party presidential candidate Marina Silva (L) attends a campaign rally in Sao …

By Walter Brandimarte

RIO DE JANEIRO (Reuters) - Investors are warming up to a possible victory by Marina Silva in Brazil's presidential election as the popular environmentalist emerges as their best shot at avoiding four more years of a government they strongly dislike.

Disdain for President Dilma Rousseff's leftist policies runs so deep in Brazilian financial markets that one comment making the rounds there says: "Marina is like Russian roulette, but Dilma is like a fully-loaded revolver."

It captures the mistrust that many investors feel toward Silva, whose history of volatile decisions, lack of executive experience and emphasis on eco-friendly policies, even at the possible expense of economic growth, have all raised red flags.

But a recent rally in Brazilian assets suggests that, at least for now, investors are looking past their misgivings.

Stocks are up 10 percent over the past two weeks, including a more than 2 percent rise on Wednesday, as Silva surges in the race for the Oct. 5 election.

Opinion polls released on Tuesday night and Wednesday morning show Silva with a significant lead over Rousseff in the event of a second-round runoff on Oct. 26, which now seems certain.

A physically frail figure who grew up poor in the Amazon, learned to read only as a teenager, and combines evangelical Christianity with a fervent following among Facebook-savvy, educated urban youth, Silva's contradictions can be bewildering even to Brazilians, let alone investors on Wall Street.

Yet, since formally entering the presidential race last week following the death of her Brazilian Socialist Party's previous candidate in a plane crash, Silva has earned comparisons to other global leaders who recently rode a youth-driven desire for change to victory.

Ilan Solot, a strategist at Brown Brothers Harriman in London, compared Silva to Indian Prime Minister Narendra Modi, who won election this year in another major emerging market that, like Brazil, has seen economic growth slow sharply.

"Not only do we think she has a very high chance of winning the elections - say, greater than 50 percent chance - but we also believe that a Silva government would be very positive for Brazil, both for markets and for the country as a whole," Solot said.

To be sure, Brazil's presidential race is only now reaching its boiling point with the debut of campaign ads on TV, which are free in Brazil and parceled out according to parties' size in Congress.

The airwaves will thus be dominated by Rousseff and centrist Senator Aecio Neves, who are backed by larger coalitions than Silva's. That gives them a good opportunity to claw back support following Siva's surge.

DELEGATING ECONOMIC POLICY

Rousseff still has a strong base of support in Brazil's impoverished northeast, where her government's social programs are very popular.

Yet nowhere is antipathy toward Rousseff greater than in the country's financial capital, Sao Paulo, where investors are tired of sustaining heavy losses since she took over in 2011.

Since then, Brazil's economy has grown less than 2 percent a year on average, and the real has lost 26 percent.

The benchmark Bovespa stock index plunged 35 percent through last March, when it started recovering on bets that either Rousseff would be less interventionist in a second term or that whoever replaces her would be more business-friendly. Even now, it is down about 12 percent during her presidency.

Of the three main candidates, most financial investors still seem to prefer Neves.

A seasoned politician from a centrist party with large governing experience, he is considered the safest alternative to ensure economic stability while luring private investment back into the country.

Yet recent polls have shown Silva with a solid grip on second place for the Oct. 5 vote, which would put her into the runoff against Rousseff.

Since entering the race, Silva has worked to cast herself as a reformist, pro-market figure whose policies, if elected, would not be much different from Neves'.

Her team of experts includes respected Brazilian economist Eduardo Giannetti da Fonseca and sociologist Neca Setubal, one of the heirs to Itau Unibanco SA, Brazil's largest private-sector bank.

"The fact that Silva brings with her advisors of (that) caliber ... gives markets a lot of comfort," said Marcelo Salomon, an emerging markets analyst with Barclays in New York. "I'm giving a vote of confidence to Marina Silva."

Given her strong team, Silva also seems likely to steer clear of what investors see as one of Rousseff's main pitfalls - the desire to constantly intervene in the economy.

Rousseff has alternately raised and lowered taxes while also making policy decisions that caused huge losses for state-run oil company Petroleo Brasileiro SA and others.

"(Silva) passes the message that she would be the country's president and not its chief economist," said Eric Fine, emerging market debt portfolio manager at Vaneck, a New York-based money manager with $33.8 billion in assets.

Fine said he is currently avoiding Brazilian assets that suffer from "policy uncertainty," such as government debt.

At a recent meeting with bankers in Sao Paulo, Silva reportedly said that, if elected, she would mostly delegate economic policy to advisers and focus on other issues that interest her more, such as environmental policy, poverty reduction and anti-corruption efforts.

"I'm not going to try to manage something I don't understand," one banker present quoted her as saying.

Giannetti da Fonseca has said Silva would restore a government commitment with fiscal discipline, inflation targets, and a free-floating exchange rate - the "tripod" of economic policies first adopted by former president Fernando Henrique Cardoso, of Neves' PSDB party.

Given the similarities between the economic platforms of Silva and Neves, a PSDB source told Reuters last week that the party would support her if Neves fails to make the runoff.

Still, some investors and analysts warn that a Silva government could be a leap in the dark.

They fear her reputation for inflexiblity could be a problem, especially since her own thin party support would force her to work with bigger, more established parties in order to move needed legislation through Congress.

She would also likely face an adverse economic scenario of low growth, high inflation and current account deficits upon taking office in early 2015.

"I don't think markets think she will be worse than Dilma. But because of Brazil's economic problems, the situation may require someone who's more tested," said Vaneck's Fine.

(Additional reporting by Brian Winter and Bruno Federowski in Sao Paulo, Editing by Brian Winter and Kieran Murray)

View Comments (2)

Recommended for You

  • US billionaire says WWII Japanese ship found in Philippines

    Microsoft co-founder Paul Allen said Wednesday he had found one of Japan's biggest and most famous battleships on a Philippine seabed, some 70 years after American forces sank it during World War II. Excited historians likened the discovery, if verified, to finding the Titanic, as they hailed the…

    AFP
  • Senate fails to override Obama's veto of Keystone XL approval

    By Susan Cornwell WASHINGTON (Reuters) - The U.S. Senate failed on Wednesday to override President Barack Obama's veto of legislation approving the Keystone XL oil pipeline, leaving the controversial project to await an administration decision on whether to permit or deny it. The Senate mustered…

    Reuters
  • France, Cameroon wouldn't take foreigner later shot by LAPD

    LOS ANGELES (AP) — A homeless foreigner shot to death by Los Angeles police was in the country illegally after serving time for a bank robbery but couldn't be deported because no country would take him, U.S. immigration authorities said Wednesday.

    Associated Press
  • 175-Pound Pit Bull Hulk Shatters Misconceptions About the Breed

    This dog just may be the world's largest Pit Bull. Only 18-months-old, Hulk weighs a hefty 175 pounds. He's also best friends with a 3-year-old boy.

    ABC News
  • U.S. may review 1959 airplane crash that killed Buddy Holly

    (Reuters) - U.S. transportation safety investigators said on Wednesday they are reviewing a request to reopen a probe into the 1959 airplane crash that killed musicians Buddy Holly, Ritchie Valens, J.P. Richardson, better known as "The Big Bopper," and their pilot. The original investigation 56…

    Reuters
  • Former marine reported killed in Syria

    A former Royal Marine has become the first Briton to be killed while fighting with Kurdish forces battling Islamic State jihadists in Syria, leaving his family "devastated" Wednesday. Konstandinos Erik Scurfield, 25, died on Monday in a battle with IS militants, a source in the Kurdish People's…

    AFP
  • Australians on Indonesia death row arrive on execution island

    Two Australian drug smugglers were taken Wednesday to an Indonesian island where they will be executed despite frantic diplomatic efforts to save them, as Prime Minister Tony Abbott said Australia was "revolted" by their looming deaths. Andrew Chan and Myuran Sukumaran, the ringleaders of the…

    AFP
  • Mom convicted of killing son, 5, by poisoning him with salt

    WHITE PLAINS, N.Y. (AP) — A woman who blogged for years about her son's constant health woes was convicted Monday of poisoning him to death by force-feeding heavy concentrations of sodium through his stomach tube.

    Associated Press
  • View

    Hello kitty and kitty and lots more kitties on Japanese island where cats rule (17 photos)

    An army of feral cats rules a remote island in southern Japan, curling up in abandoned houses or strutting about in a fishing village that is overrun with felines outnumbering humans six to one. Originally introduced to the mile-long island of Aoshima to deal with mice that plagued fishermen's…

    Yahoo News
  • Iranian president says Israel 'greatest danger'

    Iranian President Hassan Rouhani on Wednesday said Israel creates the "greatest danger" in the region, after Israeli Prime Minister Benjamin Netanyahu warned against a nuclear deal with the Islamic republic. In a speech on Capitol Hill, Netanyahu said Tuesday the nuclear agreement US President…

    AFP
  • Survivor testifies about 2 friends stabbed, bound, drowned

    PHILADELPHIA (AP) — A man who survived being beaten, bound, stabbed in the neck and kicked into the Schuylkill River took the stand in a hearing Tuesday and described the night his two friends lost their lives.

    Associated Press
  • Killers sought in deaths of 300,000 chickens in South Carolina

    By Harriet McLeod CHARLESTON, S.C. (Reuters) - Revenge may be the motive for the killings in South Carolina of more than 300,000 commercial chickens worth about $1.7 million over the past two weeks, authorities said on Monday. Birds have been found dead of unnatural causes in 16 chicken houses at…

    Reuters
  • Georgia police officer killed in shootout

    By David Beasley ATLANTA (Reuters) - A Georgia police officer was killed in a shootout with a suspect in suburban Atlanta early on Wednesday, authorities said. Officers went to investigate reports of shots in a suburban neighborhood and came under fire about 1:30 a.m. EST, according to the Fulton…

    Reuters
  • Americans Love K-Cups, but Their Creator Regrets Inventing Them

    Now it seems that John Sylvan, the inventor of the tiny containers, is firmly on Team #KillTheKCup too. “No matter what they say about recycling, those things will never be recyclable,” said Sylvan.

    Takepart.com
  • Chad president tells Boko Haram leader to surrender or face death

    By Madjiasra Nako N'DJAMENA (Reuters) - President Idriss Deby of Chad said on Wednesday he knew the whereabouts of Abubakar Shekau, the leader of the Nigerian militant group Boko Haram, and called on him to surrender or risk being killed. Chad's army has waged a series of battles against Boko Haram…

    Reuters
  • View

    Turkish jetliner skids off on runway (9 photos)

    A Turkish Airlines jet landing in dense fog in the Nepalese capital Wednesday skidded off a slippery runway but there were no serious injuries, officials said. Officials at Kathmandu's Tribhuwan International Airport said the plane with 238 people on board was coming from Istanbul when the…

    Yahoo News
  • Paris Hilton brother Conrad to plead guilty to plane assault

    LOS ANGELES (AP) — Paris Hilton's youngest brother, Conrad, agreed to plead guilty to assaulting flight attendants on a trip from London to Los Angeles last year when authorities say he called other passengers "peasants" and threatened to kill crew members.

    Associated Press