Political surprise boosts Brazil

Brazil's benchmark Bovespa received a boost after it emerged the pro-business candidate, Aécio Neves, made it through to the run-off.

Investors in Brazil have kept close watch on this year's presidential election. The Bovespa index was buoyed this week following a surprise result in the first round of voting last Sunday the pro-business candidate Acio Neves benefited from a late surge, and now faces a run-off on 26 October with the leftist incumbent Dilma Rousseff.

Neves is the markets' favourite because investors think he is more able to deal with Brazil's many structural problems.

This is even more important today as a major commodities exporter, Brazil benefited from huge Chinese demand for raw materials, which in turn fuelled a consumption boom.

But that demand has fallen now, and unfortunately, "Brazil didn't spend its windfall well", as Fidelity's Tom Stevenson puts it in The Sunday Telegraph.

One major problem is a lack of investment, which has become even more obvious now that the boost from commodities and household spending is gone.

The economy shrank in the first half of 2014. Tackling high taxes and red tape are key priorities, while making labour laws more flexible would boost productivity.

The odds of the election providing the "much-needed shift in policy to revive Brazil's flagging economy", says Capital Economics, "is at least greater than a few weeks ago".

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