EMERGING MARKETS-Brazil state-run firms soar as Rousseff approval drops

Thu Mar 27, 2014 12:11pm EDT

By Asher Levine
    SAO PAULO, March 27 (Reuters) - Shares of Brazil's
state-controlled companies jumped on Thursday after a poll
showed a decline in President Dilma Rousseff's approval rating,
as investors bet the stocks' outlook would brighten if she fails
to win re-election. 
    The country's benchmark Bovespa index rallied to its
highest level in over two months while the broader MSCI Latin
American stock index advanced for the eighth
session in nine.
    Brazil's currency, the real, strengthened sharply
against the dollar. Other currencies in the region also gained.
    A widely-tracked poll released on Thursday showed a decline
in popular support for the Rousseff administration ahead of
October's presidential election, though she is still expected to
win. 
    Many investors have been critical of the Rousseff
administration for heavy-handed government intervention in the
private sector and policies that run against the interests of
minority shareholders in state-controlled firms.
    The slightly higher probability that Rousseff could lose
drove shares of both state-run lender Banco do Brasil SA
 and oil firm Petroleo Brasileiro SA, known
as Petrobras, up nearly 6 percent. Shares of state-controlled
electric utility Centrais Eletricas Brasileiras SA,
known as Eletrobras, soared almost 11 percent.
    "Any change in any percentage point that points to the
possibility of the (Rousseff) government not being re-elected
helps these shares," said Thiago Montenegro, a trader at
Quantitas Asset Management in Porto Alegre, Brazil. "The market
is starting from the premise that the state firms couldn't
possibly be treated any worse."
    Petrobras shares have lost nearly 40 percent since Rousseff
took power in 2011, hurt by a government policy that forces the
company to import fuel and sell it at a loss in order to tamp
down inflation.
    Banco do Brasil suffered from a government push to lower
lending spreads in an effort to boost consumption, while shares
of Eletrobras plunged last year after the government forced it
to accept lower tariff rates, also to boost growth and tame
prices.
 
    The poll also boosted the real, which strengthened more than
1 percent on investor optimism that a new administration would
better manage the nation's finances, traders said. 
    Investors meanwhile eyed higher interest rates after the
central bank on Thursday sharply raised its 2014 inflation
forecast and said it sees the economy growing at a moderate
pace.
    Investors also watched for a sovereign bond sale after the
government said it had chosen banks to issue seven-year euro
bonds in European and American markets, just days after ratings
agency Standard & Poor's downgraded Brazil's sovereign debt
rating.
    Chile's peso strengthened about 0.5 percent against
the dollar, boosted by higher prices for copper, the
country's main export.
    The Mexican peso also strengthened about 0.5 percent,
while the country's benchmark IPC stock index advanced
0.15 percent.
    "Slowing growth, lower commodity prices and a gradual
normalisation of interest rates in the developed world are
likely to weigh on most of (Latin America's) markets," wrote
Capital Economics economist Edward Glossop in an investor note
Thursday. "But in contrast, we expect stronger economic growth,
aided by the U.S. recovery, to support Mexico's financial
markets."
    
    Key Latin American stock indexes and currencies at 1537 GMT:
 Stock indexes                             daily %     YTD %
                               Latest       change    change
 MSCI Emerging Markets            974.24      0.62     -3.44
                                                    
 MSCI LatAm                      3119.18      2.64     -5.06
                                                    
 Brazil Bovespa                 49172.09      2.52     -4.53
                                                    
 Mexico IPC                     39813.46      0.13     -6.82
                                                    
 Chile IPSA                      3706.84      0.26      0.21
                                                    
 Chile IGPA                     18322.39      0.21      0.52
                                                    
 Argentina MerVal                6232.87      1.59     15.62
                                                    
 Colombia IGBC                  13517.21      0.61      3.41
                                                    
 Peru IGRA                      14043.09      0.07    -10.86
                                                    
 Venezuela IBC                   2573.56      2.89     -5.96
                                                    
                                                            
 Currencies                                daily %     YTD %
                                            change    change
                                  Latest            
 Brazil real                      2.2650      1.83      4.05
                                                    
 Mexico peso                     13.0735      0.43     -0.33
                                                    
 Chile peso                        551.3      0.45     -4.57
                                                    
 Colombia peso                   1965.04      0.41     -1.68
 Peru sol                           2.81      0.04     -0.60
                                                    
 Argentina peso (interbank)       8.0000      0.03    -18.84
                                                    
 Argentina peso (parallel)         10.83      0.55     -7.66
                                                    
 
 (Additional reporting by Priscila Jordao and Bruno Federowski;
Editing by Meredith Mazzilli)