Brazil suddenly has the eyes of global investors, let alone EM investors.
Yesterday's 3.5% move was on massive volume and across all sectors (97%) up day. Brazil (EWZ, quote) is now up 10 of 13 days and we are now flush with the 200mda average in USD terms after the Real has also been a rocket.
The index in local terms is right at the 100mda, poised just below the 200mda. The move in two weeks has been 14% and confirmed our call on the double bottom we saw at 45000 on the index.
So what has happened? Clearly political popularity polls are driving a view that weaker popularity by Dilma equates to a political transition in October (after elections) or at the very least, a change in the reform process which clearly hasn’t been working.
The translation to the equity market is that those sectors and companies who have been most pressured by the state in the last few years are going to experience less pressure from the government to restructure, lower prices and cater their business to political objectives.
The companies that are the clear winners are companies in the oil and gas sector (Petrobras - PBR, quote), telecoms (Telefonica - VIV, quote, TIM Participacoes - TSU, quote) and even the banks (Bradesco - BBD, quote, Itau - ITUB, quote).
Sensitivity to changes in the reform process is high. Brazil overall has seen a direct inverse correlation to the Dilma popularity poll: each percentage point tick lower in the polls has taken the market higher. We started down this path 2 weeks ago when we got a hint that fresh data was going to be weaker for DIlma.