(Updates with closing prices in 11th paragraph.)
May 22 (Bloomberg) -- Hedge-fund manager Luiz Carvalho can’t quite bring himself to root against his home country of Brazil in next month’s World Cup.
Still, it’s awfully tempting.
A defeat for the five-time winners of soccer’s championship would be a blow to President Dilma Rousseff’s re-election bid, Carvalho said, bolstering the chances for a new government that would be friendlier to investors after the worst economic performance of any administration since 1992.
As polls started showing Rousseff losing popularity before October’s vote, Brazilian stocks have posted the best returns in dollar terms among the world’s major equity indexes since mid- March, rebounding from a bear-market bottom.
“If we do poorly in the World Cup, there’s a better chance of a new president,” Carvalho, a managing partner at New York- based Tree Capital LLC, said in an interview yesterday. “Everything that’s bad for Dilma is good for the market.”
That a lifelong fan like Carvalho, who recalls the joy he felt as an 8-year-old in 1970 when Brazil won, is even willing to consider the benefits of a tournament defeat shows investors’ desperation for new leadership. Rousseff’s support is declining after 44 months of above-target inflation as well as protests last year by Brazilians upset that the government was spending $11 billion to host the soccer tournament in a country where 7.2 million people still live on $1.25 a day or less.
Rousseff’s slide in the polls has fueled gains of as much as 40 percent in state-controlled companies such as Centrais Eletricas Brasileiras SA, on prospects a new administration will be less interventionist, according to Luis Gustavo Pereira, a 26-year-old strategist at brokerage Guide Investimentos.
Pereira savors the memory of the 1994 tournament when Brazil beat the Netherlands in the quarter-finals and went on to win the title against Italy. He bought tickets for four matches this year, and is hoping Brazil will win a record sixth time even if it’s bad for the market.
“The World Cup and the elections are the two events that are moving the market,” he said by phone from Sao Paulo. “If Brazil loses, it could have a positive impact on stocks. But rooting against the team is too much to ask.”
The presidential press office didn’t reply to an e-mailed request for comment. This year, Rousseff has said she’ll make good on a pledge from her 2010 campaign to eradicate extreme poverty. About 22 million people have left those ranks during her three years in office, according to government figures.
The Ibovespa jumped 23 percent in dollar terms from March 14 through yesterday. Eletrobras, as the state-run utility Centrais Eletricas is also known, was the best performer during that span. The benchmark gauge rose 1.2 percent in Sao Paulo today.
Marco Aurelio Mello, who presides over Brazil’s Superior Electoral Court, also says the World Cup could have an impact on the October elections. Mello, an avid supporter of Rio de Janeiro’s Flamengo soccer team, once accidentally interrupted a session of Brazil’s Supreme Federal Court as his mobile phone rang, blasting the team’s anthem into his microphone.
“It will depend a lot on the mood of voters,” Mello told journalists in Brasilia in February. “We can’t forget the trauma of 1950.”
The tournament that year, the last time the country hosted the World Cup, still weighs on Brazil’s soccer fans. Assuming Brazil would win the title, Jules Rimet, a Frenchman who was president of soccer’s governing body, had already prepared a speech in Portuguese before the final match. When Brazil was defeated by Uruguay, 173,850 stunned fans sat silently in Rio de Janeiro’s Maracana stadium.
“When Brazil lost that game to Uruguay it was considered a kind of a national tragedy,” Jeffrey Lesser, a historian at Emory University in Atlanta who specializes in Brazil, said in a phone interview. “Even people in their 20s can talk about that loss in 1950 as if they were there. It’s so present.”
The current team, whose standout player is 22-year-old forward Neymar da Silva Santos, is favored to win the trophy this year, according to data compiled by Bloomberg Sports.
If recent history is a guide, the gloom may not have a lasting impact even if Brazil loses. Former President Luiz Inacio Lula da Silva, the then-opposition candidate who won the 2002 election after Brazil beat Germany for its fifth World Cup title, was re-elected in 2006 following a loss to France. Rousseff, his successor, won in 2010 after the team was eliminated by the Netherlands in South Africa.
Lesser, whose favorite team plays in the stadium that will host this year’s first game, says the magnitude of protests against the government could have a bigger impact on the elections.
“If Brazil wins, I don’t think anybody is going to forget that there are problems,” he said. “A loss will provide a very appropriate political discourse for protesters to say, ‘On top of the fact that we spent all this money and don’t have health, education or transportation, we also lost.’”
A police strike in Brazil’s northeast and protests in Rio de Janeiro and Sao Paulo on May 15 marked the start of nationwide demonstrations planned ahead of the tournament. Bus drivers walked off the job in Sao Paulo on May 20, and workers on the city’s train system have said they may strike next week if negotiations over pay don’t advance.
Last year’s protests during the Confederations Cup soccer tournament drove Rousseff’s popularity to an all-time low. A Datafolha survey published May 9 showed 37 percent of Brazilians would vote for her, down from 44 percent in February. It was the first tally that suggested she wouldn’t win in the first round, which would require her support to surpass that of all challengers combined.
Rousseff gained less support than her main competitors in an Ibope poll released today that shows a race too close for her to win in the first round of voting.
“A scenario without Dilma is much better for the market,” Tree Capital’s Carvalho said. “But rooting against the team is not doable.”
--With assistance from Anna Edgerton and Raymond Colitt in Brasilia, Tariq Panja in Rio de Janeiro, Ney Hayashi and Denyse Godoy in Sao Paulo and Boris Korby in New York.