Expensive Brazil Real Seen Unlikely to Gain on Rousseff Loss

Brazil’s real, down 7.7 percent against the dollar in the past three months, is still overvalued and unlikely to recover even if the candidate favored by investors unseats President Dilma Rousseff in the runoff, according to one of the nation’s biggest fund managers.

The real has climbed 2.6 percent since opposition candidate Aecio Neves surprised analysts to finish second against Rousseff in the first round of voting Oct. 5 after promising fiscal prudence and a new finance team led by former central bank President Arminio Fraga. While the real might gain immediately after a Neves victory, the trend is for depreciation, said Paulo Bilyk, the chief investment officer of Rio Bravo, which oversees 10 billion reais ($4.16 billion).

“There is a consensus in the marketplace that the real is badly priced today, that the real is too expensive, that the real would devalue,” Bilyk said yesterday in Sao Paulo. “There are overrated expectations that the real would appreciate if Aecio were elected.‘‘

Rousseff would get 45 percent of votes for the Oct. 26 runoff, compared with 44 percent for Neves, according to an Oct. 11-12 poll Vox Populi poll of 2,000 people that was published yesterday after markets closed. The difference is within the margin of error of 2.2 percentage points.

The currency advanced 1.5 yesterday after a Sensus poll published Oct. 11 showed Neves with 52.4 percent support and Rousseff with 36.7 percent.

Bilyk expects the opposition candidate will win.

Credit Rating

Fraga, 57, said in a Oct. 6 interview that he can implement policies to enable the country to stave off a credit downgrade. He said that as finance minister he would implement spending cuts and post a higher primary budget surplus over the next two or three years.

‘‘The macroeconomic adjustment has to be gradual, but it has to be credible,’’ Fraga said by phone from Rio de Janeiro, adding that he wouldn’t cut social programs. ‘‘It has to be virtuous.’’

Standard & Poor’s cut Brazil’s credit rating in March for the first time in more than a decade on slower growth and what it said was deteriorating fiscal accounts, and Moody’s Investors Service last month raised the possibility that Brazil may eventually be cut to junk when it lowered its outlook to negative.

Rousseff had 42 percent of the vote in the first-round election Oct. 5, followed by Neves with 34 percent and Marina Silva’s 21 percent. A senator and former governor, Neves trailed Silva in opinion polls last month.

HSBC Outlook

The currency slid 0.1 percent to 2.3956 per U.S. dollar at 3:01 p.m. in Sao Paulo. One-month implied volatility on options for the real, reflecting projected shifts in the currency as the runoff approaches, increased to 25 percent today, the highest in emerging markets.

HSBC Holdings Plc said in a research report earlier this month that the real will weaken to 2.6 per dollar ‘‘as soon as end-2014 if the sentiment of our post-election scenario of ‘no policy change’ prevails.”

The real will strengthen to 2.36 per dollar at the end of the year, according to the median of 44 analyst estimates compiled by Bloomberg.

The central bank will keep its daily currency intervention program in place through the end of the year, and any decision on exchange rate policy for 2015 will be made close to that date, according to a government official involved in the discussions, who asked not to be identified because the talks aren’t public.

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