Investors dizzy over Brazil

Investors in Brazil "have gone almost dizzy with excitement", says Jonathan Wheatley on FT.com's Beyond Brics blog. Last month, Brazil's presidential election, due on 5 October, was thrown wide open when the centre-left opposition's main candidate Eduardo Campos was killed in a plane crash.

His running mate, Marina Silva, a former environment minister and daughter of an Amazonian rubber tapper, is now ahead in the polls. The benchmark Ibovespa index has climbed by almost a fifth since she emerged as a serious contender, reaching its highest level since January 2013.

The hope is that Silva's victory "would mean less of the statist, interventionist,ad hoc policymaking seen under President Dilma Rousseff and more of the market-friendly, across-the-board, pro-growth reform so many economists and investors have been crying out for for years".

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The market-friendly tone of a recent policy document from the Silva campaign, which also promised to give the central bank more independence in its battle against inflation, left investors feeling especially bullish last week.

According to Tony Volpon of Nomura, "we may well have a new president with a very strong popular mandate for change".

Certainly, Brazil needs structural changes to boost growth. The economy has shrunk in three of the last four quarters, and is only 8% larger than at the startof 2010, saysThe Economist.

The commodity boom of the past decade has cooled and consumers have little appetite to keep spending after a multi-year borrowing spree.

Another key problem is that investment amounts to just 18% of GDP, with poor infrastructure, red tape, rigid labour laws and corruption also denting potential output.

But can Silva really help? Don't count on it. As someone who has risked her life to defend the poor and the environment, says the FT's Samantha Pearson, she seems "unlikely to be a faithful ally of the business community".

In any case, Brazil's notoriously fractious Congress, with 22 parties, makes building alliances for major changes difficult. But even if the country doesn't get its act together now, it's still worth a bet that it will eventually: the market is one of the world's cheapest on a cyclically adjusted price/earnings ratio of 10.3.

Two plays worth a look are the iShares MSCI Brazil UCITS ETF (LSE: IDBZ) and the JPMorgan Brazil Investment Trust (LSE: JPB).