Eletropaulo Leads Brazil Utility Rally on New Government Bet

Brazilian power distributor Eletropaulo Metropolitana SA led utilities higher for a second day as energy prices in the spot market fell and speculation mounted that October’s elections will usher in a new government.

The shares surged 7.4 percent to 9.76 reais at the close of trading in Sao Paulo, leading a gauge of electric companies to the highest level since October. The benchmark Ibovespa gauge rose 2.2 percent in the biggest two-day rally since July 2012.

Eletropaulo joined a rally in Brazilian stocks on June 6 after support for President Dilma Rousseff fell to 34 percent, according to a Datafolha poll released that day, boosting speculation a new president could reduce the intervention in the economy. Utilities posted the biggest losses in Brazil in 2012, when Rousseff said license renewals would only be given to companies that agreed to cut prices to curb inflation.

“It’s one of the sectors that has been benefiting most from Dilma dropping in polls,” Fernando Goes, an analyst at brokerage firm Clear Corretora, said by phone from Sao Paulo. “It was one of the first interventions the government made, which caused the stocks to plunge.”

The Sao Paulo Stock Exchange Electrical Energy Index is up 5.2 percent this year, after plunging 12 percent in 2012 and another 8.8 percent in 2013. Eletropaulo has climbed 4.3 percent in 2014, after losing 54 percent and 44 percent in the two previous years.

A recent decline in spot-market energy prices, which had surged to records as low dam levels increase the use of more expensive thermo-electric plants, could also be boosting Eletropaulo, Goes said.

Brazil’s power grid operator, known as ONS, said on a weekly report on June 6 water flow would rise in the southeast and central-west subsystems of the country this week.

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