The Ibovespa plunged to the lowest level in 20 months after Standard & Poor’s cut its credit rating outlook on Brazil and Petroleo Brasileiro SA, triggering a selloff in the shares of the state-controlled oil producer.
Petrobras, as the company is known, slumped, while government-run power utility Centrais Eletricas Brasileiras SA fell to the lowest level in three weeks as both companies’ rating outlooks were cut to negative by S&P. Pulp producer Fibria Celulose SA led raw-materials exporters higher as the currency fell.
The Ibovespa dropped 2.4 percent to 51,618.63 at the close of trading in Sao Paulo, the lowest since October 2011. The index slid 3.5 percent this week. Fifty-eight of 71 stocks fell on the gauge today as S&P cut the outlook on Brazil’s BBB rating amid an economic slump that is threatening to drive up the country’s debt levels.
“This review confirms the very negative feeling investors are having this year about the government’s indebtedness and Brazil’s scenario of low growth and stubborn inflation,” Luis Gustavo Pereira, an analyst at brokerage Futura Corretora, said in an interview from Sao Paulo.
The Brazilian index accelerated its decline after falling below a technical support level at 52,200, according to Raphael Figueredo, an analyst at MyCap, the homebroker unit of Icap Plc’s Brazilian subsidiary.
“That’s the point where investors began to execute their stop-loss orders,” he said in a phone interview from Rio de Janeiro. “The market is very pessimistic in the short and medium terms. The Ibovespa is heading toward the next support on 49,400 now.”
S&P said in a statement yesterday it lowered the outlook on Brazil’s BBB rating, which is two levels above junk and in line with Mexico and Russia. Forecasts for a third year of “modest” economic growth and “weaker” fiscal policy could lead to an increase in the government’s debt levels, S&P said.
Petrobras dropped 3.2 percent to 18.84 reais, the lowest since April 22, while Eletrobras fell 5.3 percent to 9 reais, the lowest closing price since May 15.
The real declined 0.1 percent to 2.1319 per dollar, helping Fibria gain 2.1 percent to 24.30 reais. Suzano Papel e Celulose SA rose 1.2 percent to 7.79 reais. Plane maker Embraer SA jumped 0.8 percent to 19.30 reais.
“There is a positive effect of the weakening of the Brazilian currency for exporters’ revenue,” Marcel Kussaba, the head of equity research at Quantitas Asset Management, said in a phone interview from Porto Alegre, Brazil. “But as the real depreciates, the investments foreigners made in dollars in the Brazilian exchange lose value too, so the gain in the end might be canceled. This is another reason for the Ibovespa to fall.”
The Ibovespa has slumped 15 this year amid concern accelerating inflation may curb Brazil’s economic recovery and the government’s interventionist policies will hurt profits in industries including utilities and energy. The MSCI BRIC Index of shares in Brazil, Russia, India and China has dropped 9 percent over the same period.
Brazil’s benchmark equity gauge trades at 12.4 times analysts’ earnings estimates for the next four quarters, compared with 10.4 for the MSCI Emerging Markets Index of 21 developing nations’ equities, data compiled by Bloomberg show.
Trading volume for stocks in Sao Paulo was 8.15 billion reais ($3.82 billion) today, according to data compiled by Bloomberg. That compares with a daily average of 7.71 billion reais this year, according to data compiled by the exchange.