Brazil's Bovespa Surges as Homebuilders, Raw-Materials Producers Advance

Brazil’s Bovespa stock index rallied, rising the most among the world’s 20 biggest equity markets, as real-estate companies and commodity producers climbed after the measure fell to the cheapest level in more than a year.

Vale SA, the world’s biggest iron-ore miner, climbed the most since October as metals prices increased. Klabin SA, Latin America’s biggest paper maker, rose the most in six months after Fibria Celulose SA said it plans to raise pulp prices. Petroleo Brasileiro SA, the state-controlled oil company, rebounded from the lowest price since March 2009. Gafisa SA surged 7.2 percent, leading homebuilders higher.

The Bovespa index climbed 3.6 percent to 60,259.33, rebounding from the lowest level since September, after a key momentum indicator gave the strongest buy signal since 2004. Fifty-eight stocks rose on the gauge while eight fell, helping pare the index’s weekly loss to 5 percent. The real strengthened for the first time in seven days, rising 1.9 percent to 1.8486 per dollar.

“It’s about time -- the selling has been going on for a couple weeks,” said Arthur Byrnes, who helps manage about $800 million at Deltec Asset Management Corp. in New York. “Real estate got clobbered. Petrobras is being given away. Things in Brazil two months ago didn’t look so cheap, and they’re starting to look cheap again.”

Global Plunge

The MSCI Latin America Index rebounded today after entering a so-called bear market yesterday, extending its drop from an April 14 high to 21 percent. The Bovespa and the real slid for a sixth session yesterday, the longest losing streak for each since October 2008.

The Bovespa’s 19 percent drop from an April high dragged it to 11 times analysts’ earnings estimates yesterday, the lowest level in 13 months.

The plunge in global equities this month wiped out $5.3 trillion of market value as Germany’s crackdown on speculation, plans for spending cuts by Europe’s most indebted nations and proposals to tighten U.S. finance industry regulation shook investor confidence. The German lower house of parliament approved the country’s share of a $1 trillion lending package to ease Europe’s debt woes, which Federal Reserve Governor Daniel Tarullo said may pose a threat to the global economy.

“If people can believe there’s no imminent worry of default, the rest of the world will get some breathing space,” said Byrnes. “Brazil is nearing a short-term bottom here. The country is in as good shape macro-wise and corporate balance sheet-wise as it’s been in my lifetime. We’re getting to the point where those who want to sell have sold.”

Stocks Rebound

Vale rose for the first time in nine sessions, gaining 7.4 percent to 40.29 reais, after copper prices jumped the most in three months on speculation that demand will remain ample in China, the world’s biggest metal user. Petrobras, as the state oil company is known, advanced 0.6 percent to 27.58 reais.

Klabin climbed 10 percent, the steepest gain on the index, to 4.85 reais. The company “is likely to benefit from its great exposure to the domestic packaging paper sector” following the pulp-price increase, according to Credit Suisse Group AG, Fibria, the world’s largest pulp producer, advanced 3.9 percent to 29.30 reais.

Gafisa jumped 7.2 percent to 11 reais, helping extend a two-day gain for the BM&FBovespa Real Estate index to 9.1 percent, after the builder was selected along with MRV Engenharia e Participacoes SA and PDG Realty SA Empreendimentos & Participacoes as “top picks” by JPMorgan Chase & Co. The New York-based bank cited the companies’ “stronger” fundamentals and valuations that presented “attractive entry points” in a note to clients today.

Homebuilders Rally

“We further raised our overweight position on the homebuilding sector,” Banco Santander SA strategist Marcelo Audi said in a note to clients today. The industry is now the heaviest-weighted at Spain’s biggest bank, said Audi, based in Sao Paulo.

Brazilian stocks are set to rebound from the longest losing streak in 19 months after a key momentum indicator gave the strongest buy signal since the bear-market low in May 2004, according to Bay Crest Partners LLC.

The Bovespa index’s 14-day relative strength index, or RSI, sank to 23 yesterday, below the threshold of 30 that indicates a rally, according to technical analysis. The last time the RSI was this low, on May 10, 2004, the Bovespa surged 23 percent in the following three months. The RSI identifies possible turning points in indexes or securities by measuring the degree that advances and declines outpace each other in a given time period.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

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