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Serra draws closer in Brazil poll, markets react
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By Raymond Colitt
BRASILIA |
Thu Oct 14, 2010 4:19pm EDT
BRASILIA (Reuters) - Brazil's presidential race narrowed to a statistical dead heat in a new poll on Thursday, causing investors to react for the first time in months to the possibility of a victory by opposition candidate Jose Serra.
The survey by polling firm Sensus showed Serra trailed ruling party candidate Dilma Rousseff by just four percentage points -- within the poll's margin of error, and a far cry from the 20-point lead Rousseff enjoyed in late August.
The poll showed Rousseff with 46.8 percent support and Serra with 42.7 percent in the October 31 runoff. Other recent polls have given Rousseff a lead of as much as eight points, raising questions about whether the Sensus survey was an outlier.
Still, it is clear that a recent corruption scandal, plus a controversy over Rousseff's abortion views, have badly eroded support for the career civil servant whom President Luiz Inacio Lula da Silva chose as his preferred successor.
As a result, many investors began to hedge their bets on Thursday in case Serra wins -- signaling a potential shift in an election financial markets have largely ignored because Rousseff was the prohibitive favorite.
"No one imagined we could see this 'technical tie' so early, and so the market is pricing this in," said Paulo Nepomuceno, an economist at Brazil's Coinvalores brokerage. "The movement (in markets) is very strong."
Yields on Brazil's interest-rate future contracts fell as markets accounted for Serra's more hawkish stance on public spending, which would probably bring rates down over time.
Brazil's real also sank 0.54 percent to 1.662 per dollar in local trade, underperforming other major currencies in Latin America after it hit two-year highs in recent sessions.
Serra has repeatedly said he thinks the real is overvalued, which investors interpret as a sign he could take steps to weaken the currency if elected.
Neither candidate is expected to deviate substantially from the mix of center-left economic policies that have made Brazil one of the world's hottest emerging markets under Lula's rule, though there are enough potential differences in fiscal policy, for example, to send some investors scrambling.
Rousseff, 62, is still favored by most to prevail, thanks to Lula's support and Brazil's booming economy. A report issued on Monday by the Eurasia Group, a thinktank, gave Rousseff a 75 percent chance of winning the runoff.
Yet the momentum in the race has clearly shifted since Rousseff just failed to win a majority of votes in the first round of the election on October 3.
The focus on social issues has shifted the election away from her central message that she is the best candidate to continue Brazil's recent run of prosperity.
SERRA POUNDS AWAY AT SOCIAL ISSUES
Former Sao Paulo state governor Serra has hammered away at his opponent for her contradictory statements on abortion -- a hot-button issue in the world's most populous Roman Catholic country and where Christian evangelicals are a powerful force.
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