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Ibovespa Declines to Three-Month Low as Brazil’s Economy Shrinks

Dec. 3 (Bloomberg) -- The Ibovespa fell to a three-month low as Brookfield Incorporacoes SA led a decline among homebuilders after a report showed Brazil’s economy contracted more than analysts forecast in the third quarter.

Tobacco company Souza Cruz SA was the worst performer on the MSCI Brazil/Consumer Staples Index. Steelmakers Usinas Siderurgicas de Minas Gerais SA and Gerdau SA followed metals lower. Iron-ore producer Vale SA contributed the most to the benchmark gauge’s decline.

Brazil’s benchmark equity index sank 1.7 percent to 50,348.89 at the close of trading in Sao Paulo with 68 of its 72 members lower. The real declined 0.9 percent to 2.3748 per U.S. dollar at 5:19 p.m. local time. Latin America’s largest economy contracted 0.5 percent in the third quarter from the previous three months, the national statistics agency said. The median forecast of economists surveyed by Bloomberg was for a 0.3 percent decline.

“It’s hard to imagine why people will turn to equities given how things are going in Brazil,” Fausto Gouveia, who helps manage 500 million reais at Legan Administracao de Recursos, said in a phone interview. “It’s not just the numbers themselves, but it’s also this feeling that the government is completely lost when it comes to its macroeconomic policies.”

President Dilma Rousseff’s administration has tried to shore up economic growth by cutting taxes on goods, boosting subsidized credit for businesses and allowing private companies to run airports and toll roads as part of a $240 billion infrastructure plan. Even after utilities were asked to lower electricity rates in order to have their licenses renewed and as Petrobras subsidized fuel prices, inflation remains above the midpoint of the government’s target.

Brookfield, Souza Cruz

Brookfield fell 5.6 percent to 1.01 reais. Souza Cruz lost 2.1 percent to 22.57 reais. Usiminas, as Usinas Siderurgicas is known, declined 0.7 percent to 12.30 reais. Gerdau slid 1.2 percent to 17.86 reais. The Bloomberg Base Metals 3-Month Price Commodity Index fell 0.3 percent as signs of a stronger U.S. economy fueled speculation the Federal Reserve will reduce a stimulus program that has boosted commodities and emerging-market equities.

Vale slid 1.3 percent to 32.21 reais.

State-run oil company Petroleo Brasileiro SA gained 0.9 percent to 17.51 reais following its biggest plunge since 2008. The stock sank 9.2 percent yesterday after the company said in a Nov. 29 statement that it would raise gasoline and fuel prices without disclosing any plans to phase out fuel subsidies.

The Ibovespa entered a bull market Sept. 9 after rising 20 percent from this year’s low on July 3 through that day. The gauge is still down 28 percent in dollar terms this year, compared with a decline of 5.1 percent for the MSCI Emerging Markets Index of 21 developing nations’ equities.

Trading volume of stocks in Sao Paulo today was 6.65 billion reais, data compiled by Bloomberg show. That compares with a daily average of 7.52 billion reais this year through that day, according to data available 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: Brendan Walsh at bwalsh8@bloomberg.net

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