EMERGING MARKETS-Brazil markets set to plunge on Rousseff re-election

lunes 27 de octubre de 2014 06:39 GYT

By Asher Levine and Walter Brandimarte

SAO PAULO/RIO DE JANEIRO Oct 27 (Reuters) - Brazil's financial markets are set to plunge on Monday following the victory of President Dilma Rousseff over pro-business challenger Aecio Neves in Sunday's presidential election.

The sell-off may be contained in the next few days, however, if Rousseff signals she will tweak economic policy to boost Brazil's flagging economy, as hinted in a conciliatory first speech she gave after re-elected on Sunday.

After the closest, most divisive campaign since Brazil returned to democracy three decades ago, Rousseff won 51.6 percent of votes in a runoff against Neves, who won 48.4 percent support.

The tight and fast-changing election campaign had sent Brazil's financial markets on a wild ride with big gains whenever Rousseff lost ground in polls and drops whenever her odds looked stronger.

Rousseff's economic policies have been roundly criticized by investors for tipping Brazil into a recession while damaging state-run companies such as oil producer Petrobras and lender Banco do Brasil along the way.

Many investors placed their hopes on a Neves victory, seeing him as ready and able to rescue the private sector from what they see as the heavy and unpredictable hand of Rousseff's leftist government.

With the election now decided, Monday's open is expected to show a sharp selloff in both the Bovespa stock index and real, especially after both asset classes gained on Friday on mounting perception that Neves would eke out a win.

Long-dated contracts for interest-rate futures are also expected to sell off, driving yields paid on those instruments sharply higher. Those yields had fallen sharply recently on bets that mainstream fiscal and monetary policy in a Neves' government would make room for lower interest rates in the future.   Continuación...