Election crunch time is fast approaching for Brazil – and the outcome is uncertain for investors.
As one of the world’s leading powerhouse economies, who wins at the polls has a significant impact on whether investors stick or twist with this influential emerging market.
Not so long ago, the result looked like a resounding yes for incumbent President Dilma Rousseff.
Her lead in opinion polls looked unassailable, but started to fall away when the nation found out how much hosting the World Cup and forthcoming Olympics was costing them.
Voters are also moaning about poor public services and ingrained corruption in local and national government.
Then opposition leader Eduardo Campos was killed in an air crash and running mate Marina Silva took up the torch on his behalf.
The polls are now showing a split vote and neither side can be certain of gaining an overall majority in the vote this week – nor in a run-off on October 26.
“Investors seem to be on the side of Silva,” emerging market fund managers Daniel Isidori and Zara Kazaryan, of Threadneedle Investments.
“Businesses and voters feel Rousseff meddles unnecessarily with the economy to their detriment. Her party has been in power for just over a decade and perhaps that signals everyone just wants a change and many fail to see just what she can do that she hasn’t already done to improve their lives.”
Isidori and Kazaryan argue that Silva gaining the presidency will spark a market revival and elevate consumer and business confidence.
“It’s a tough call,” they said. “Brazil is in recession and it’s difficult for Rousseff to argue how she can improve things because if she could, her government surely would have already acted.”
Coalition most likely
Growth is expected to be low next year – a miserable 0.7% against projections of more than double that and way below the booming economy Brazilians have come to expect in recent years.
Inflation of nearly 6% against a target of 4.5% is not helping.
“The cards look stacked against Rousseff but it would be wrong to say she has lost all popular support,” said Isidori and Kazaryan.
Silva, for instance, has never held public office and neither have many of her close political allies.
The most likely result is a coalition.
Isidori and Kazaryan suggest a win for Rousseff will have a negative impact on markets, while a win for Silva will signal a short term boost that will mask the country’s underlying economic problems.