A rally in Brazilian banks sent the Ibovespa to the biggest advance in the Americas even as Standard & Poor’s moved a step closer to cutting the nation’s credit rating to below investment grade.
The benchmark equity gauge rebounded along with most markets around the world, following the longest rout since 2013, as lenders Itau Unibanco Holding SA and Banco Bradesco SA climbed at least 1.2 percent. Stocks briefly trimmed gains after S&P changed the outlook on its BBB- rating for Brazil to “negative” from “stable.”
“Investors are just buying stocks that look attractive after the steep decline of the past few days,” Hersz Ferman, an economist at brokerage Elite Corretora, said by phone from Rio de Janeiro. “Still, prospects for Brazil remain pretty bad.”
The stock gauge added 1.8 percent to 49,601.60 at the close in Sao Paulo, following a seven-day slide. The Brazilian currency rose 0.2 percent to 3.3568 per dollar, after earlier falling as much as 2.1 percent. Yields on real-denominated notes climbed to three-month highs, while swaps increased before the Brazilian central bank’s decision on interest rates.
The Ibovespa has tumbled 15 percent from this year’s peak in May amid forecasts for the worst recession in 25 years and a widening probe into Brazil’s state-controlled oil producer. President Dilma Rousseff has struggled to shore up the budget and avoid another downgrade after S&P cut Brazil’s rating to the cusp of junk in March 2014.
S&P revised its view for Brazil, citing a “greater than one-in-three likelihood that the policy correction will face further slippage given fluid political dynamics.” The rating company mentioned prospects Latin America’s largest economy will show no growth next year after a 2 percent projected contraction for 2015.
Bets on a rating cut increased last week after Finance Minister Joaquim Levy’s admission that Brazil won’t meet its fiscal goals. The government has asked lawmakers to approve a cut in its target for the budget surplus before interest payments. Moody’s Investors Service, which met with officials in Brazil this month, also has a negative outlook on the nation’s grade.
The Ibovespa gained Tuesday after a selloff sent the gauge to the lowest valuation level in four months, according to data compiled by Bloomberg based on estimated earnings.
Itau, Latin America’s largest bank by market value, rebounded from the longest slide since 2010. Bradesco extended a three-day advance. The lenders rallied after their valuation discount to the stock gauge widened to more than 40 percent. While the economic slowdown sank earnings for Ibovespa companies by an average of 36 percent in the first quarter, bank profits jumped 23 percent.
Vale SA, the world’s largest iron-ore producer, jumped from a decade low amid a rebound in the steelmaking ingredient. Petroleo Brasileiro SA, the oil producer at the center of Brazil’s biggest corruption scandal, climbed for the first time in eight days.