The so-called Dilma dump seems ridiculous in retrospect. During this year’s second quarter, the iShares MSCI Brazil  exchange-traded fund (ticker: EWZ) gained 8.2%, largely on hopes that Rousseff would be ousted. Then, in the third, it fell 9% as she gained in the polls. Then it bounced around like a yo-yo during the elections, gaining 4% on Friday, Oct. 24, with a Neves poll bump, and falling 5% on Monday after Rousseff was victorious.
 
The question is: How much damage can Rousseff do that investors aren’t already aware of? Her Workers’ Party has been in power for 12 years. Rousseff merely perpetuated many of its pre-existing social-welfare policies during her first term, and these have largely been successful. They are credited with lifting 40 million people—about a fifth of Brazil’s population—out of poverty in the last decade. Meanwhile, this September’s 4.9% unemployment level was a record low for the country.
                                  
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The market seems to hate that Dilma Rousseff, re-elected as Brazil’s president last week, puts people ahead of businesses. Photo: Paulo Fridman/Bloomberg News
 
           
What the market seems to hate is that Rousseff puts the Brazilian people before business. She has waged an ongoing battle with oil giant Petrobras PBR (PBR) to keep prices below market rates, so citizens can have affordable heat and gasoline. Petrobras is now so cheap that rational investors argue that her interventionist policies are priced into its shares. “Petrobras is trading at 50 cents on the dollar of what we see as its value,” says Marc Tommasi, who oversees the Manning & Napier Emerging Markets fund (MNEMX). The stock has a price-to-book value of only 0.4, while the average stock in the Energy Select Sector SPDR  ETF (XLE) has a 1.89 P/B, according to Morningstar.
 
Tommasi’s fund has a 17% weighting in Brazil, well over his MSCI benchmark’s 10%, even though he dislikes Rousseff’s policies. He thinks that, in Petrobras’ case, there’s evidence that Rousseff will ease the oil-price restrictions to allow the company to be more profitable. “Ultimately, there will have to be some give in terms of these interventionist policies,” he says. “Rousseff has already backed off on some price constraints.”
 
Moreover, some companies will be unaffected or will even benefit from Rousseff’s policies. Co-manager Richard Hoss has made the EP Latin America fund (EPLAX) the best performer in the Latin category in the past year largely by avoiding Brazil. Yet, even he favors companies like Kroton Educacional (KROT3.Brazil) in Brazil’s education sector. “Education spending has been a cornerstone of Rousseff’s campaign,” he says. “We knew that under either candidate, the sector would do well.”
 
Though he favored Neves, Hoss had said prior to the election that its results were largely irrelevant to what he sees as Brazil’s generally gloomy outlook. If Rousseff won, the country’s low unemployment, but high inflation—now 6.75%—would persist. But if Neves won and succeeded in cutting government spending, unemployment would spike, and growth would slow even further than it recently has. Both scenarios were unappealing. “It’s six of one, half a dozen of the other,” Hoss says. Whether he’s right or not, his long-term view makes more sense than the crazy zigzag the market expressed for either candidate.
 
TRUTH BE TOLD, there are more similarities between Rousseff and Neves than many investors are willing to admit. Neves stated during his campaign that he had no plans to scale back Rousseff’s popular antipoverty programs. “In India, the excitement this year over having a new prime minister was more black-and-white,” says Amrita Nandakumar, who covers emerging markets for Van Eck Global. “But I don’t know if there was such a distinguishing factor between the candidates in Brazil’s case. No one has been able to find a good explanation for why people seem so nervous.”
 
Ironically, some of Brazil’s hardest-hit stocks might benefit the most from the Rousseff government. The Market Vectors Brazil Small-Cap  ETF (BRF) consists largely of consumer-discretionary companies that cater to Brazil’s growing middle class—home builders, education, retail, autos—not the highly regulated energy sector, which accounts for only about 1% of its portfolio. Yet, it’s down 15.7% this year, compared with the 6.2% decline in the energy-laden, large-stock iShares ETF.
 
“We’ve seen a huge divergence between small-cap and large-cap performance,” says Sophie Bosch de Hood, co-manager of the JPMorgan Latin America fund (JLTAX). “Some of the small-cap names have overreacted, and you can find value opportunities there.” She points to companies such as bus maker Marcopolo (POMO3.Brazil) as an example. As an exporter, it will benefit from the weaker Brazilian currency, which has fallen on investors’ negative sentiment.
 
Though it has proved somewhat more resilient, the Global X Brazil Consumer  ETF (BRAQ) is also down 3.1% this year and has plummeted 13.3% in the past three months. “Rousseff has a history of building the middle class and lifting people out of poverty,” says Jay Jacobs, a research analyst at Global X Funds. “If that trend continues, it will certainly help consumer stocks.”
 
So what the election really means is a buying opportunity for believers in Brazil’s long-term prospects. Disbelievers probably should have gotten out 12 years ago.