The Ibovespa plunged into a bear market as faltering growth drove down Brazilian consumer stocks and raw-material exporters slid with commodities on concern the Federal Reserve will scale back U.S. monetary stimulus.
The benchmark stock gauge fell 21 percent from its Jan. 3 bull market peak to 49,769.93 at the close of trading in Sao Paulo. Oil producer OGX Petroleo & Gas Participacoes SA was the worst performer, with a 76 percent plunge. Brookfield Incorporacoes SA (BISA3) led declines by homebuilders, sinking 58 percent. The Ibovespa is the first among the four biggest emerging-market benchmarks to approach a bear market. The MSCI Emerging Markets Index fell 12 percent during the same period.
“You have inflation that’s higher than desired and GDP growth weaker than people were expecting, so projections for the year have bogged down,” Andres Calderon, a portfolio manager at Hansberger Global Investors, which oversees $6.2 billion in assets, said in a telephone interview. “You just haven’t had continued positive news.”
Brazil’s retail sales unexpectedly fell in March for the third time in four months as inflation near the top of the central bank’s target range sapped consumer demand. Latin America’s largest economy expanded 0.6 percent in the first three months of 2013, below the 0.9 percent median forecast in a Bloomberg survey. Policy makers have raised the benchmark rate 0.75 percentage point this year from a 7.25 percent record low in a bid to curb inflation.
The Ibovespa has slumped 5.9 percent in the past three sessions since Standard & Poor’s cut Brazil’s credit rating outlook to negative. The gauge’s 90-day volatility, a measure of price swings, rose to a five-month high of 19 today, according to data compiled by Bloomberg.
Brazil’s benchmark equity index fell 3 percent today as global stocks slipped after the Bank of Japan left a lending program unchanged, adding to concern central banks are growing reluctant to add more stimulus. OGX tumbled 9.3 percent as controller Eike Batista sold shares in the company for the first time since its initial public offering. Iron-ore producer Vale SA fell 2.9 percent and state-controlled oil company Petroleo Brasileiro SA slid 1.9 percent as commodities slipped.
The Standard & Poor’s GSCI index of 24 raw materials has dropped 4.3 percent since Jan. 3, dragging down Brazilian commodity producers, which account for about 39 percent of the Ibovespa’s weighting. The real rose 0.7 percent to 2.1326 per dollar today after touching the lowest level on a closing basis in four years, prompting the central bank to intervene in the currency markets.
While the MSCI Global Index has gained 9.3 percent in 2013, the Ibovespa has declined each month. The MSCI BRIC Index of shares in Brazil, Russia, India and China has dropped 12 percent this year. The dollar-denominated RTS Index of Russian stocks slumped 20 percent from its 2013 peak last week, while the country’s benchmark Micex (INDEXCF) Index has lost 17 percent from its Jan. 28 high. Turkey’s benchmark stock index approached a bear market today amid anti-government protests.
“This is the worst economic moment for Brazil in 10 years,” Eduardo Velho, the chief economist at INVX Global Partners, said in a phone interview from Sao Paulo. “The time of booming demand for commodities, which made emerging countries’ currencies appreciate and boosted Brazil’s growth, has passed. That’s very negative for the Ibovespa and might get worse, considering that the U.S. may raise its interest rates soon.”
Federal Reserve Chairman Ben Bernanke said last month that the central bank may reduce asset purchases in financial markets if there’s evidence of a sustained improvement in economic growth. Those comments helped drive benchmark 10-year U.S. bond yields up 52 basis points, or 0.52 percentage point, since the end of April to 2.19 percent.
Speculation that central banks in developed countries will pare back stimulus has made emerging-market investments riskier, according to Charles Schwab Corp., which manages $2.11 trillion in client assets.
“The new wrinkle is the currency moves and the impact that can have on inflation,” Michelle Gibley, Schwab’s director of international research, said by phone. “I wouldn’t paint them all with the same brush, but the risks have risen. You’re likely to see more of them fall into bear markets.”
Brazil’s inflation held at 6.5 percent in May after reaching a 16-month high of 6.59 percent in March, breaching the upper end of policy makers’ target range.
“These markets have been reacting to the question, ‘Why should I hold emerging markets when I can buy Treasuries that are rising in yield?’ ” Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo & Co., said by telephone. His firm oversees about $1.3 trillion. “I think we’ll see some good buying opportunities in emerging markets. In the case of Brazil, it depends on the policy response. They need to address the inflation pressure.”
Economists expect Brazil’s gross domestic product to expand 2.5 percent this year, down from 3.2 percent in January, according to a central bank weekly survey published yesterday. They predict a year-end rate of 8.75 percent.
Trading volume for stocks in Sao Paulo was 8.4 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 7.7 billion reais this year through June 10, according to data compiled by the exchange.
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