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 5.1 percent to 15 reais at the close of trading in Sao Paulo, the lowest since Jan. 28. It was the worst performer in the BM&FBovespa Small Cap index, which rose 0.4 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 to the equivalent of sell from hold, saying higher Brazilian interest rates could crimp earnings. The shares retreated 2.2 percent to 24.05 reais, the lowest since Feb. 8.
“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.