Next woman to lead Brazil faces challenges
Emerging Markets have had many pseudonyms through history; Newly Industrialised Countries, Lesser Developed Economies and now the emergence of the term Frontier Markets. The conventional wisdom is that for Emerging Markets to develop, they will need to follow in the footsteps of the richer nations, copying them politically, economically and socially. However, there are lessons that the so-called ‘developed world’ can learn from the Emerging. In politics, Emerging Market countries race far ahead in electing female leaders. The members of the G7 have elected a grand total of three female leaders between them in their history. In contrast, the two front-runners of Brazil’s 2014 presidential election are women.
Recent polls imply, incumbent Dilma Rousseff is neck and neck with Marina Silva. Brazilian equity markets have risen at the prospect of a Silva victory as investors are unhappy with current economic performance and what they view as damaging interventions by Rousseff. Silva’s proposals include greater independence for the central bank, and fiscal restraint and tax reform which have proven popular amongst the Brazilian middle-class. Alternatively, Rousseff appeals to the electorate who is suspicious of liberal market reforms. Poorer voters are worried that the Bolsa Familia payments introduced by Rousseff will be rolled back if she doesn’t win a second term.
In the event of a Rousseff win, the equity market is unlikely to perform well as investors shun her interventionist policies. If Silva wins, the short-term market performance is likely to be strong. However, reform is often difficult to implement and markets can run ahead. Regardless of who wins, the victor will have to contend with structural problems in Brazil and investors should be cautious.
Sam Vecht is manager of the BlackRock BSF Emerging Markets Absolute Return Fund