The Ibovespa dropped the most among the world stock gauges on concern a U.S. budget deal reached yesterday will bring the Federal Reserve closer to paring stimulus that has bolstered demand for Brazilian equities.
Telecommunications company Oi SA was the worst performer on the index, dropping the most since October. Petroleo Brasilero SA contributed the most to the gauge’s decline as crude fell in New York. The Ibovespa decreased 1.8 percent to a three-month low of 50,067.99 today in Sao Paulo as the real weakened 1.5 percent to 2.3414 per dollar, swelling the gauge’s decline in dollar terms to the most among 94 primary indexes.
The Fed meets next week after U.S. congressional negotiators agreed yesterday to a budget deal that would reduce the deficit by $23 billion. The Ibovespa has slid 11 percent since May 22, when the Fed signaled its asset-buying program could be trimmed if the economy showed improvement.
“As the stimulus is cut, money will fly from the Brazilian stock market to the U.S.,” Fernando Goes, an analyst at Sao Paulo-based brokerage firm Clear Corretora, said by phone. “So investors are avoiding taking any positions until there’s more definition on this issue.”
Oi dropped 5.7 percent to 3.50 reais. Itau Unibanco Holding SA, Latin America’s biggest lender by market value, lost 2.7 percent to 30.69 reais. Petroleo Brasilero SA fell 3 percent to 16.78 reais as the MSCI Brazil/Energy Index was the worst performer among 10 industry groups.
The real declined the most in emerging markets as foreign-exchange outflows in the first week of December exceeded the amount coming into the country last month, weighing on the currency’s outlook.
Brazil’s benchmark equity index 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 percent for the MSCI Emerging Markets Index of 21 developing nations’ equities.
Trading volume of stocks in Sao Paulo was 4.2 billion reais yesterday, compared with a daily average of 7.47 billion reais this year, according to data available from the exchange.