Sul America Plunges in Sao Paulo as Bank of America Cuts to Hold

Sul America SA, a Brazilian health insurer, tumbled to the lowest level since January after Bank of America Merrill Lynch cut the stock to the equivalent of hold.

The shares dropped 5.6 percent to 14.92 reais at 1:45 p.m. in Sao Paulo. A close at that level would be the lowest since Jan. 28. It was the worst performer in the BM&FBovespa Small Cap (SMLLBV) index, which fell less than 0.1 percent.

Bank of America analysts including Jorg Friedemann lowered Sul America to the equivalent of hold from buy, citing the stock’s recent rally and Brazil’s shift toward an interest-rate cutting cycle. The central bank yesterday raised the benchmark Selic for the first time since July 2011 as policy makers seek to slow inflation levels jeopardizing an economic recovery.

“The monetary tightening movement, although beneficial in the long run, should bring short-term pressures to earnings generation,” the analysts wrote in a note to clients.

Sul America had risen 6.3 percent this year through yesterday while the benchmark Bovespa index slumped 13 percent.

The analysts also cut the recommendation for insurer Porto Seguro SA (PSSA3) to the equivalent of sell from hold, saying higher Brazilian interest rates could crimp the company’s earnings. The shares retreated 2.5 percent to 23.98 reais today, set for the lowest close since Feb. 4.

“With the recent steepening of the interest rate curve, we see downside risks to Porto’s results in 2013, which could lead to negative stock reaction,” the analysts wrote.

To contact the reporter on this story: Julia Leite in New York at jleite3@bloomberg.net

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

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