The Ibovespa led losses among major benchmarks in the Americas after the chiefs of Brazil’s largest builders were arrested amid a graft probe at Petroleo Brasileiro SA.
The stock gauge trimmed its weekly advance after Brazil’s judges issued detainment and arrest warrants for 12 people including the top executives of Odebrecht SA and Andrade Gutierrez SA. The decision was part of a probe into allegations of bribery, money laundering and inflated contracts at state-controlled oil producer Petrobras.
“The arrest of executives at such big companies added to the overall negative mood in the market, especially after data showed the economy has decelerated further,” Marco Aurelio Barbosa, the head of equity research at CM Capital Markets, said by phone from Sao Paulo.
The two builders were among the more than 20 Petrobras suppliers facing allegations of paying kickbacks to win public contracts. The widening investigation has helped worsen estimates for Latin America’s biggest economy, which is forecast to show the worst contraction in 25 years. Brazilian stocks also slumped Friday after data showed the economy shrank for the sixth time in the past seven months.
The Ibovespa slid 0.9 percent to 53,749.41 at the close of trading in Sao Paulo, paring this week’s gain to 0.8 percent. Braskem SA, the petrochemicals maker controlled by Odebrecht, sank 10 percent while Petrobras retreated from a one-month high.
Odebrecht said in an e-mailed statement that its offices in Sao Paulo and Rio de Janeiro had been searched and that arrest warrants had been carried out. Andrade Gutierrez in an e-mailed statement said it was aiding in the police investigation and denied any involvement in the scandal.
There’s a “very meaningful risk” that a ballooning corruption probe could push the economy into a deeper recession by undermining government spending cuts, Chris Garman, the head of Latin America at political risk consultant Eurasia Group, said in a note.
The nation’s equities had entered a bull market in April, after rallying more than 20 percent from their 2015 low, on speculation government measures to shore up the budget would restore investor confidence. Since then, the benchmark gauge has slipped 5 percent amid bets the economy will slow further.
Brazil is on track to contract more than every country in the region except Venezuela this year, according to economists surveyed by Bloomberg. That’s done little to slow annual inflation that’s at its fastest in more than a decade even as central bank has continued to raise borrowing costs.
“The economic scenario is dismal,” Alvaro Bandeira, a partner at Orama Asset Management, which oversees 280 million reais ($90.8 million), said by telephone from Rio de Janeiro. “Prices are rising, consumption is decreasing, and that means prospects for the stock market are very negative this year.”
Nine out of 10 groups in the MSCI Brazil retreated Friday as consumer stocks tumbled. Electronics and furniture retailer Via Varejo SA sank to a record low. Lender Banco Bradesco SA contributed the most to the Ibovespa’s drop.
Pulp producer Fibria Celulose SA, which gets about 90 percent of its revenue from exports, climbed as the real retreated. Homebuilder Cyrela Brazil Realty SA rallied after approving a plan to buy back as many as 20 million of its voting shares in one year.
Trading volume of equities in Sao Paulo was 5.8 billion reais, data compiled by Bloomberg show. That compares with a daily average of 6.97 billion reais this year through Thursday, according to the exchange.