Brazil is selling off on the news that current President Dilma Rousseff has taken the lead in polls predicting next month’s presidential election on Oct. 5th. This augurs poorly for prospects of reform.
The Brazilian stock market, the Ibovespa, is down 4%.
The Brazil ETF, a basket of Brazilian stocks that trade as one security, is down 5%.
Petrobras, Brazil’s massive quasi-state oil company, is heavily weighted in the ETF, and is leading stocks down with its own 10% plummet.
Wall Street superstars like Fortress Investment Group’s Mike Novogratz have been betting on regime change to turn Brazil’s economy around. Inflation is high, wages are rising but corporate margins are low, and difficult reforms are necessary.
Morgan Stanley sees the country’s GDP going negative in the first half of 2015, contracting -0.4%.
Rousseff’s regime has been plagued with allegations of corruption and mismanagement. Petrobras itself is a perfect example. A former Petrobras employee named dozens of politicians who have taken kickbacks from the company under Rousseff’s watch.
“A few years ago I said this was the best run oil company in Latin America,” economist Claudio Loser, co-founder of Centennial Group Latin America, told Business Insider earlier this month, “but it has collapsed under the political pressure of the government. They’re wasting a great opportunity in the way they’re managing their oil resources. I’m not saying ‘as goes Petrobras there goes Brazil’ but it is very very important.”
That is why Wall Street wants someone else in charge.
However it looks like that change may not come — not from the top at least. The latest polls put Dilma Rousseff ahead of her most serious contender, environmental activist/politician Marina Silva, from 1% to 4%. In early September, some polls put Silva up by as much as 10%.
And change isn’t necessarily change in this scenario. Yes, Silva is a Green candidate, but she comes from the “same place” as Rousseff, Loser told Business Insider.
Cantor Fitzgerald put it this way in a recent note: “It does not take much sense of history to appreciate the irony that Ms. Silva is running a reform campaign against a leftist Workers Party candidate, who herself came in under a reform agenda president (Lula). Moreover, Ms. Silva was herself a Workers Party minister from 2003 to 2008 under Lula.”
And more to this point, Silva’s former running mate — late-politician Eduardo Campos, who died in a plane crash this summer — was included on that list of Petrobras names.
So what’s changed, really?
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.