The Bovespa rose for a sixth day, with homebuilders leading the equity index’s longest winning streak in two months, one day after Brazil’s first round of presidential elections.
Gafisa SA led a real-estate stocks rally after economists raised their 2010 economic growth forecast for the fifth straight week while traders reduced bets for borrowing-cost increases. OGX Petroleo & Gas Participacoes SA rose to a record as the 76 percent premium on China Petrochemical Corp.’s purchase of a stake in Repsol YPF SA’s Brazilian unit implied a higher value for the country’s oil assets.
The Bovespa rose 0.2 percent to 70,384.92, the highest level since April 15, as of the 4 p.m. New York time close. Thirty-eight stocks rose on the index while 28 fell. The real dropped 0.5 percent to 1.6987 per dollar. The yield on the interest-rate futures contract due January 2012 fell one basis point, or 0.01 percentage point, to 11.43 percent.
“I wouldn’t expect the stocks to react a huge amount, because I don’t think there’s that huge divide that you often get in countries,” said Jerome Booth, who helps oversee about $35 billion in assets as co-founder and head of research at Ashmore Investment Management Ltd. in London. Regardless of who wins, “for stocks, the tax issue is important. There’s a concern there might be an additional tax or other measures.”
Finance Minister Guido Mantega said last month the government may raise taxes on foreigners’ fixed-income investments to stem gains in the real. That would add to a 2 percent levy, known as IOF, imposed in October last year on foreign purchases of equities and bonds. The Bovespa fell 2.9 percent, the most in four months, the day the tax was implemented.
Dilma Rousseff, who served as cabinet chief under President Luiz Inacio Lula da Silva, finished first in the first round of the election yesterday and will face her main rival, former Sao Paulo Governor Jose Serra, in a runoff after failing to capture a majority of votes.
“Irrespective of who wins, the pillars of stability will remain in place,” said Philip Poole, the global head of macro and investment strategy at HSBC Global Asset Management, which oversees more than $400 billion. Poole spoke in an interview on Bloomberg TV.
Ashmore’s Booth said he expects both candidates to seek tax reform and greater infrastructure investment. “I’m very optimistic we’ll see strong, pro-reform government,” he said.
Volatility may still increase ahead of the second round on Oct. 31, Bank of America Corp. said.
“As up until two weeks ago Rousseff seemed to be headed for a landslide victory, markets have been pricing extremely low political noise ahead and will likely have to adjust,” wrote Bank of America economists including Virgilio Castro Cunha in a note to clients today.
Brazil’s gross domestic product may expand 7.55 percent this year, according to the median estimate in a central bank survey of about 100 economists. Gafisa, Brazil’s second-biggest homebuilder by revenue, increased 2.7 percent to 13.86 reais as the BM&FBovespa Real Estate Index gained 0.8 percent.
Petroleo Brasileiro SA may be active this month as investors speculate the next government’s policy toward the state-controlled oil company may shift, according to Kelly Trentin, head analyst at Spinelli Corretora in Sao Paulo.
If Serra gains ground against Rousseff in the presidential race, Petrobras stock may benefit “because Lula’s government proved quite interventionist in the company,” Trentin said in a phone interview last night.
Sinopec Group, as China’s second-largest energy company is known, agreed Oct. 1 to pay $7.1 billion for a 40 percent stake in Repsol’s Brazil unit. That amounts to $15 a barrel compared with the $8.50 that Petrobras paid last month for assets in Brazil, according to Sanford C. Bernstein & Co.
The Bovespa index trades for 10.4 times analysts’ 2011 earnings estimates, compared with 10.9 times for the MSCI Emerging Markets Index and 14 times for Mexico’s IPC index, according to weekly data compiled by Bloomberg. The Bovespa trades at 15.6 times the reported profits of its companies.
“Once the election is past, the market is expecting some kind of movement in the IOF” to stem the appreciation of the real, said Eduardo Roche, who helps oversee 3 billion reais ($1.8 billion) at Banco Modal SA in Rio de Janeiro. “It’s expected for fixed income; for stocks we don’t know. That would be a very negative surprise.”
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