Wall Street bets on change in Brazil, but the gradual kind
By Walter Brandimarte
RIO DE JANEIRO, April 22 (Reuters) - Brazil's financial markets have soared over the past month on hopes that the government may run smaller deficits, stop interfering as much in the private sector and perhaps even undertake long-needed reforms to revive the economy.
But some of the most experienced Brazil-watchers on Wall Street are saying: Not so fast, guys.
While the business climate is likely to improve somewhat in the next few years, hopes for a truly dramatic changes such as an overhaul of the public pension system are probably overdone, they say.
The markets' optimism has centered around an October presidential election in which left-leaning President Dilma Rousseff, who seeks a second term, has been losing popularity among voters.
Rousseff has been unpopular with financial markets because of her heavy hand in the economy. She has alternately cut and raised taxes in various sectors and held down fuel prices at state-run oil company Petroleo Brasileiro SA, among other moves.
Rousseff's two main presidential election rivals are more market-friendly so an opposition win would be welcomed by investors.
Even if Rousseff wins, as she is still expected to do, many investors believe she has been chastened by her falling approval ratings and economic growth averaging just 2 percent a year during her first term, and that could lead her to be less activist in a second term.
A new-look Rousseff would please financial markets if she is "very decisive in the first three months of her new administration to tackle the (macroeconomic) problem," said Paulo Vieira da Cunha, head of research at ICE Canyon, a fund manager with $4 billion in assets. Continuación...