Bovespa Declines as MRV Tumbles Amid Brazil Inflation Concern

The Bovespa index declined as homebuilder Brookfield Incorporacoes SA sank the most since July amid concern the central bank isn’t doing enough to contain surging inflation that threatens Brazil’s economic recovery.

MRV Engenharia & Participacoes SA tumbled to a four-month low, contributing most to the The MSCI Brazil/Consumer Discretionary Index’s 1.6 percent drop, the worst performance among 10 industry groups. Itau Unibanco Holding SA (ITUB4) led banks lower on speculation that policy makers will delay borrowing- cost increases, limiting their ability to increase loan rates.

The Bovespa dropped 0.2 percent to 57,281.02 at the close of trading in Sao Paulo. Inflation is showing “resilience,” Brazil’s central bank said today in minutes from a meeting last week, when it kept the benchmark rate at 7.25 percent. While stocks had tumbled before the meeting on concern that a rate increase might hurt corporate earnings, concern has been mounting that inflation could sap the economic expansion if left unchecked.

Today’s market reaction shows investors are “waiting for a tougher response” on inflation, said Carlos Thadeu de Freitas Gomes Filho, a senior economist at Franklin Templeton Investments in Sao Paulo. “Despite a worsening in the short- term outlook for inflation, the central bank chose to be more cautious.”

Brookfield, MRV

Brookfield plunged 6.8 percent to 2.88 reais, the steepest drop on the Bovespa. MRV dropped 6.3 percent to 10.66 reais.

Forty-five stocks fell on the Bovespa today while 23 gained. Brazilian swap rates fell after the central bank said it “considers that uncertainties -- both external and internal -- remain in the outlook and require a cautious management of monetary policy,” according to the minutes.

Itau sank 1.5 percent to 35.55 reais. Banco Bradesco SA fell 0.3 percent to 36.79 reais. The MSCI Brazil/Financials Index slipped 0.7 percent.

“The minutes brought no clear signs that the Selic rate may go up in the next policy meeting, and banks are suffering today because of that,” Joao Pedro Brugger, who helps oversee 220 million reais at Leme Investimentos Ltda. in Florianopolis, Brazil, said in a phone interview. “Growth is still failing to speed up, inflation is a matter for concern and there’s no clear indication about what the government is doing to balance all these things.”

Brazil Inflation

Annual inflation, as measured by the IPCA index, accelerated to 6.31 percent in February, a 14-month high, the national statistics agency said last week. Gross domestic product expanded 0.9 percent in 2012, the agency said on March 1.

Quickening inflation means higher costs for companies and raises concern about the longer-term outlook for the economy, said Alexandre Ghirghi, a portfolio manager at Metodo Investimentos.

“The central bank is taking a long time to react to inflation that keeps getting faster,” Ghirghi said in a phone interview from Sao Paulo.

Online retailer B2W Cia. Global do Varejo dropped 4.5 percent to 16.24 reais, the lowest in three weeks. Consumer products maker Hypermarcas SA slid 1.9 percent to 17.25 reais.

The Bovespa has dropped 9.5 percent from this year’s high on Jan. 3. The MSCI BRIC Index (MXBRIC) of shares in Brazil, Russia, India and China slid 3.8 percent over the same period.

Brazil’s benchmark equity gauge trades at 11.6 times analysts’ earnings estimates for the next four quarters, compared with 10.9 for the MSCI Emerging Markets Index (MXEF) of 21 developing nations’ equities, data compiled by Bloomberg show.

Trading volume for stocks in Sao Paulo was 8 billion reais today, data compiled by Bloomberg show. That compares with a daily average of 7.6 billion reais this year through March 12, according to data from the exchange.

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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