Brazil Stocks Post World's Biggest Gain Amid Cabinet Speculation

  • Former central bank chief Meirelles seen replacing Levy
  • Rally is broad based, with 55 of 63 Ibovespa stocks advancing

Brazilian stocks gained the most among major equity markets amid speculation that former central bank head Henrique Meirelles may replace Finance Minister Joaquim Levy, fueling optimism he could conjure the political support needed to pass austerity measures.

The Ibovespa gained 1.9 percent to 47,065.01 at the close of trading in Sao Paulo, as 55 of its 63 stocks climbed. Petrochemical maker Braskem SA and college operator Kroton Educacional SA were the best performers on the index.

Newspaper Valor Economico reported that Meirelles and politicians are already discussing possible measures to trim the country’s deficit and restore growth. Former President Luiz Inacio Lula da Silva is among Levy’s critics and has thrown his weight behind Meirelles, who was the top monetary-policy official under his government, to lead Brazil’s economic rebound, O Estado de S. Paulo newspaper reported Wednesday.

"Meirelles is definitely seen as a good name by the market, he earned his credibility as the strongest economic name in Lula’s government," said Reginaldo Siaca, a currency manager at TOV Corretora de Cambio in Sao Paulo. "It could represent a commitment to fiscal adjustments while improving the political front, since Levy is being pressured from all sides now and is weaker. Brazil is paralyzed now, and that has to change."

Levy, who started as the head of the economic team under President Dilma Rousseff in January with a mandate to restore investor confidence, has struggled to find support as he tries to cut costs and increase taxes. He has been telling aides that he isn’t planning to stay in the government for much longer, according to the Estado report.

Brazilian news agencies have reported several times in recent months that Levy is on his way out, even as Rousseff says he has her full support. Rumors of his departure have sparked selloffs amid investor concern his replacement would be less committed to reining in the country’s budget deficit.

In September, days after he told lawmakers the government wouldn’t be able to deliver a budget surplus before interest payments in 2016, concern Levy would leave sparked a rout in the currency. Levy stayed on, but since then, Brazil has had its sovereign rating cut twice, totaling three downgrades since Aug. 11.

"A Levy exit before early 2016 is likely," said Christopher Garman, the head of country analysis at Eurasia Group. "Levy has accumulated significant wear and tear both within and outside of government. As a result, independent of the reasons for his current predicament, the opportunity cost of keeping him in his post is rising.”

Investors could be overreacting to the reports, said Win Thin, the head of emerging-markets strategy at Brown Brothers Harriman & Co. in New York.

"Levy was the best thing since sliced bread until he wasn’t," he said in a message. "Will Meirelles have more success in passing fiscal measures? Maybe, maybe not."

Itau Unibanco Holding SA gained 2.7 percent, while Cia. Paranaense de Energia led a rally among power utilities after the lower house passed a bill establishing rules to bid on hydroelectric dams. Braskem added 6.6 percent, and Kroton climbed 5.9 percent.

Shopping Malls operator Iguatemi Empresa de Shopping Centers SA gained 1.2 percent after reporting third-quarter sales beat estimates.

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