Brazil Real, Stocks Gain on Recovery Bets After Election Results

  • Government supporters beat Workers’ Party in local voting
  • Currency and Ibovespa are world’s best performers this year

Brazil’s real and stocks advanced, extending the world’s best performances this year, as the results of city elections fueled optimism that the government can win the support it needs to pass measures aimed at restoring growth.

The real rose 1.6 percent to 3.2099 per dollar and the benchmark Ibovespa index climbed 1.9 percent to 59,461.23 Monday in Sao Paulo, the biggest advance in the Americas. The currency has gained 24 percent and the equity gauge has advanced 68 percent in dollar terms in 2016 on bets that President Michel Temer will be able to stem the budget deficit that cost Brazil its investment grade last year.

Temer’s PMDB and its main ally, PSDB, were the biggest winners of this weekend’s municipal elections as they will manage a combined 33 percent of the country’s cities starting in 2017. The Workers’ Party of ousted President Dilma Rousseff suffered heavy losses, losing control of Sao Paulo, the country’s largest city, to the PSDB. Investors see results as supportive of bets on the recovery of Latin America’s biggest economy.

"Now we can talk improvement," Jason Vieira, chief economist at Infinity Asset Management, said from Sao Paulo. "The scenario is calming down, so the economy will become more important in assessing allocation strategies than the political turmoil."

Joao Doria, the PSDB candidate who will be Sao Paulo’s new mayor, has said that he plans to sell a convention center and the Interlagos motor-racing track, adding to speculation that mergers and acquisitions activity in Brazil may pick up as the economy recovers.

The speaker of a lower house committee that’s analyzing a project to limit annual budget increases is expected to present conclusions early this week, according to risk consultant Eurasia Group. The committee will likely vote late this week or early next week, followed by a lower house vote by Oct. 31 and Senate approval by mid-December.

"If the legislation passes, that will be the first real step on the fiscal adjustment," Bruno Marques, a manager at brokerage XP Investimentos, said from Sao Paulo.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, fell 0.1 percentage point to 12.09 percent. All but four of the Ibovespa’s 58 stocks gained Monday, dodging a global rout on concern the Federal Reserve will raise interest rates this year and anxiety over the U.K.’s exit from the European Unit, which Prime Minister Theresa May said will begin by March.

Lender Itau Unibanco Holding SA and state-controlled oil producer Petroleo Brasileiro SA, known as Petrobras, contributed the most to the index’s gains. The crude giant, a symbol of Brazil’s ambitions and recent debacle, has climbed 109 percent this year after a new management put in place a plan to sell assets and trim debt.

— With assistance by Ney Hayashi Cruz

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