EMERGING MARKETS-Brazil markets soar as Rousseff approval drops

Thu Mar 27, 2014 4:32pm EDT

(Updates prices, adds quotes, price move context)
    By Asher Levine
    SAO PAULO, March 27 (Reuters) - Brazil's currency and
benchmark stock index skyrocketed on Thursday after a poll
showed a decline in President Dilma Rousseff's approval rating,
fueling investor optimism that the nation's economic policies
could take a market-friendly turn. 
    The country's Bovespa index closed with its biggest
one-day gain in nearly seven months while the Brazilian real
 strengthened its most against the dollar since November.
    The broader MSCI Latin American stock index,
in which Brazilian stocks carry a weighting of nearly 56
percent, notched its biggest one-day gain since July 2012.
    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 current government
for its heavy-handed 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 over 7 percent. Shares of state-controlled
electric utility Centrais Eletricas Brasileiras SA,
known as Eletrobras, soared over 10 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 idea behind the market's move is that economic policy
could change in the short-term given the rising disapproval;
that the government could see the signals and do something about
it," said Gustavo Mendonca, economist with Saga Capital in Rio
de Janeiro. "The rally will only last if we actually see a flow
of good news to support that belief."
 
    The poll also boosted the real, which strengthened 1.72
percent on investor optimism that a new administration would
better manage the nation's finances, which could attract more
foreign interest in Brazilian assets, Mendonca added. 
    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.
    Elsewhere in Latin America, Chile's peso strengthened
about 0.4 percent against the dollar, boosted by higher prices
for copper, the country's main export. Colombia's peso
 also gained about 0.4 percent. 
    A sudden surge of foreign cash into Colombia in the last
week bolsters the central bank's case for extending dollar
purchases as it seeks to build up reserves and takes advantage
of a weaker dollar to do so, policymaker Ana Fernanda Maiguashca
told Reuters late on Wednesday. 
    The Mexican peso also strengthened about 0.4 percent,
while the country's benchmark IPC stock index advanced
0.38 percent.
    "Slowing growth, lower commodity prices and a gradual
normalization 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 2011 GMT:
    
 Stock indexes                    Latest    daily %   YTD %
                                            change    change
 MSCI Emerging Markets            975.86    0.79      -3.44
                                                      
 MSCI LatAm                       3142.48   3.41      -5.06
                                                      
 Brazil Bovespa                   49628.45  3.47      -3.65
 Mexico IPC                       39911.01  0.38      -6.59
 Chile IPSA                       3745.01   1.29      1.24
 Chile IGPA                       18452.99  0.92      1.24
 Argentina MerVal                 6191.84   0.92      14.85
 Colombia IGBC                    13592.2   1.17      3.99
 Peru IGRA                        14037.48  0.03      -10.89
 Venezuela IBC                    2573.57   2.89      -5.96
                                                      
 Currencies                       Latest    daily %   YTD %
                                            change    change
 Brazil real                      2.2645    0.09      4.08
 Mexico peso                      13.0802   0.38      -0.38
 Chile peso                       551.7     0.38      -4.64
 Colombia peso                    1964.38   0.44      -1.65
                                                      
 Peru sol                         2.808     0.11      -0.53
 Argentina peso (interbank)       8.0000    0.03      -18.84
                                                      
 Argentina peso (parallel)        10.82     0.65      -7.58
                                                      
 
 (Additional reporting by Priscila Jordao and Bruno Federowski;
Editing by Meredith Mazzilli)
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article