Join the conversation:

Brazil Attracts ETF Flows as Polls Show Tight Race

Brazil Attracts ETF Flows as Polls Show Tight Race

Posted by Juan Gavasa on September 17, 2014

Investors are piling into Brazil’s largest exchange-traded fund at a faster pace than in any other country on speculation that a change in government will boost Latin America’s biggest economy. The iShares MSCI Brazil Capped ETF of stocks has posted a net inflow of $424 million so far this month, the most among 47 global funds, according to data compiled by Bloomberg. The Ibovespa climbed 2 percent to 59,114.66 today, trimming a monthly slide to 3.5 percent.

The benchmark gauge for Brazilian equities has surged 31 percent from a five-year low in March on bets President Dilma Rousseff will lose her re-election bid amid the worst economic performance in two decades. Since taking office in January 2011, she’s stepped up the government’s role in companies, changing concession-renewal rules to lower electricity rates and capping gasoline prices to tame inflation.

“Rousseff’s actions have been very negative to the economy and companies,” Alvaro Bandeira, a partner at the asset management firm Orama, said in a phone interview from Rio de Janeiro. “With the real possibility of a change, foreign investors are coming back to Brazilian equities as they see better prospects for the country.”

Rousseff would be tied with opposition candidate Marina Silva in an Oct. 26 election runoff, according to a Vox Populi poll published yesterday. The incumbent would have 41 percent support in a second-round vote, compared with 42 percent for Silva, the survey showed. The result is within the 2.2 percentage point margin of error for the survey of 2,000 people.

The net inflow that the iShares MSCI Brazil Capped ETF attracted in September is equivalent to 7.3 percent of its market capitalization. In the year through the end of August, the ETF had posted a net outflow of $350.5 million, according to data compiled by Bloomberg. The Brazilian press office of BlackRock Inc., which manages the iShares funds, didn’t immediately respond to an e-mailed request for comment.

Silva entered the race after Eduardo Campos, the head of her Socialist Party ticket, was killed in a plane crash Aug. 13. Campos had 8 percent of voter support for the first round of the election compared with 36 percent for Rousseff and 20 percent for candidate Aecio Neves, according to a July poll by Datafolha. A later survey published Aug. 29 showed Silva and Rousseff would tie in the first round with 34 percent of the vote each, followed by Neves with 15 percent.

Silva says poor management of Brazil’s economy under Rousseff is responsible for a recession in the first half of this year and inflation that last month breached the 6.5 percent upper limit of the central bank’s target range.

Unemployment that’s hovering near record lows is shielding the incumbent from attacks by Silva that the country is worse off than it was when she entered office.

Ibovespa’s recent rally is exaggerated considering Rousseff still has a significant chance to win the election amid an economic slowdown, according to Pedro Paulo Silveira, chief economist at brokerage firm TOV Corretora. Economists cut their estimates for Brazil’s growth in 2014 and 2015 to 0.33 percent and 1.04 percent, the central bank said yesterday on its website. That compares with the previous week’s forecasts of 0.48 percent and 1.1 percent.

“The market has been too speculative,” Silveira said by phone from Sao Paulo. “There’s been a lot of empty talk from all candidates about the economy and measures that should be taken. We don’t know what they would really do. Investors should be more cautious.”

Link To Full Article: 

Facebook comments



Monthly newsletter featuring articles hand picked by our country managers from the best content across PanamericanWorld.



Monthly newsletter featuring articles hand picked by our country managers from the best content across the Caribbean Region on PanamericanWorld.

PANAMERICANWORLD COUNTRIES