SÃO PAULO, Brazil – Business leaders and market strategists are hoping that Brazil, one of the world’s largest economies, can regain its footing in the wake of the re-election of Dilma Rousseff as president.
After Ms. Rousseff’s victory, markets, as expected, swooned on Monday. Brazil’s currency, the real, fell 2.7 percent against the dollar, while the stock market fell 2.8 percent, largely in reaction to the election. For the year, the Brazilian markets have been stuck in a malaise, down 2 percent this year, after a slide of 15.5 percent in 2013.
Since Ms. Rousseff took office in January 2011, the stock market has fallen 27 percent. Taking the currency’s depreciation into account, the loss for a foreign investor, in dollar terms, has been nearly 50 percent.
Against this backdrop, the newly re-elected president must contend with a stagnant economy and a growing budget deficit while seeking to reassure would-be investors of the country’s promise.
Tens of millions of Brazilians benefited from record low unemployment and generous social programs during Ms. Rousseff’s first term. Yet economic growth ground to a halt, the budget deficit rose, investment fell, and inflation is now above 6.5 percent.
Business leaders in Brazil had unabashedly endorsed her centrist opponent, Aécio Neves, who had promised to appoint as finance minister Arminio Fraga, a hedge fund manager and pro-business economist. Now, those same leaders are wondering whether Ms. Rousseff will move to restore business and investor confidence to help revive the fortunes of Brazil’s economy, the largest in Latin America.
Benjamin Steinbruch, chief executive of one of Brazil’s largest steel companies, CSN, said in August that unless policies changed “only a madman would invest in Brazil.”
Now that the reality of Ms. Rousseff’s victory sinks in, market analysts are cautiously waiting to see if her second term will bring new policies. Ms. Rousseff, a former Marxist guerrilla, emphasized her populist policies in her campaign.
Robert Ellison, managing partner of the law firm Shearman & Sterling’s São Paulo office, said companies and investors were particularly wary of how Ms. Rousseff “has been pulling levers throughout the economy to achieve political ends.”
She announced before the election that her finance minister, Guido Mantega, will resign “for personal reasons,” but she has not named his replacement.
“There’s been no definition yet of economic policy,” said Juan Jensen, chief executive of the São Paulo consulting firm Tendências. “We need to find out who the next finance minister will be.”
Although Ms. Rousseff is widely seen as the real policy maker on economic issues, her choice of finance minister should telegraph her intentions.
Many expect that the government will continue to spend generously on social programs, as it did under her predecessor and mentor, Luiz Inácio Lula da Silva. And certainly, several business sectors benefited from such support.
Home construction, private education companies and retailers did well during Ms. Rousseff’s first term, as her government’s policies subsidized homeownership, offered generous student grants and loans, and made consumer credit more accessible.
Yet some of her populist policies have directly affected corporate profits. The government has for months required the petroleum company Petrobras to sell gasoline at a loss, and it also obliged many utilities to cut consumer prices despite rising costs to generate electricity.
Ms. Rousseff promised low interest rates when she was first elected in 2010, and her central bank cut rates to a historic low, but inflation rose, and the central bank has since had to raise its basic lending rate to a level higher than it was when Ms. Rousseff took office.
Jean-Marc Etlin, chief executive of the Brazilian investment bank Itaú BBA, said that Ms. Rousseff’s victory speech, in which she promised to fight inflation and increase fiscal responsibility, was a good sign that her second term would be better than her first.
The sluggish markets, however, have weighed on stock offerings. Brazil had once been expecting a more hospitable climate for stock offerings to meet pent-up demand. But so far this year, only one company, a veterinary medicine company little known outside Brazil, has gone public.
Some financiers, however, are looking at the robust market for mergers and acquisitions. Now that prices are lower, foreign companies may be even more interested in buying stakes in Brazil’s growing consumer market.
Walgreen and CVS are reportedly both looking to purchase big Brazilian drugstore chains. CVS already bought a small local chain, Onofre, in 2013.
Consolidation in the telecom sector, where Brazil has an unusually large number of carriers, is also expected to continue.
Oi, Brazil’s largest fixed-line phone company, hired BTG Pactual to try to structure an acquisition of Telecom Italia’s Brazil subsidiary TIM, possibly in conjunction with Mexico’s América Móvil and Spain’s Telefónica. And Telecom Italia has indicated it may want to buy Oi.
Fernando Borges, president of the Brazilian Private Equity and Venture Capital Association, said that private equity firms — which generally buy big stakes in privately held companies and hold them for years — are also waiting to see how government policy evolves.
But he was optimistic that once the dust settled, big investments would take place as investors seek to tap Brazil’s huge consumer market and growing middle class.
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