- Analysts see currency decline curbing prospects for company
- Benchmark stock gauge joins global rout as banks tumble
The outlook for Petroleo Brasileiro SA worsened further after UBS AG cut its earnings projection by 80 percent, spurring a slide in the oil producer at the center of Brazil’s largest graft probe. The Ibovespa followed a selloff in global stocks.
Shares of Petrobras extended a plunge over the past year to 64 percent, more than double the decline in the stock benchmark, after the Zurich-based bank said that a weaker currency may sap profitability. The Ibovespa has slumped 4.7 percent over the past three days, while the real led global losses.
Beset by a bribery scandal, years of disappointing drilling results and the collapse in crude, the world’s most-indebted oil producer has seen analyst earnings estimates plummeting by half over the past year. With Latin America’s largest economy set for the longest recession since the 1930s amid a meltdown in emerging markets, Petrobras has also joined the slide in the Ibovespa. The stock selloff has accelerated this week on speculation that Brazil’s credit rating will be cut to junk.
“These are really hard times for Brazil,” Vitor Suzaki, an analyst at brokerage Lerosa Investimentos, said from Sao Paulo. “Petrobras is involved in a big crisis that’s far from ending. The economy is contracting, and there’s no improvement in sight. To make matters worse, global investors are moving away from riskier assets.”
The Ibovespa fell 2.5 percent to 45,477.06 at the close of trading in Sao Paulo, led by Petrobras and banks. Only 12 of the 66 stocks in the gauge rose on Tuesday, including steelmakers Gerdau SA and Usinas Siderurgicas de Minas Gerais SA.
The real retreated 2.2 percent to 3.6987 per dollar. Brazil’s bond risk, measured by credit default swaps, surged to the highest level since 2009.
Brazilian equities had entered a bear market last month, after slumping more than 20 percent from their peak in May, on concern that the nation would lose its investment-grade status as the government struggles to shore up the budget. Finance Minister Joaquim Levy’s pledge to avert a credit downgrade to junk is proving increasingly ambitious as he faces the challenge of a deeper-than-expected recession and congressional resistance to spending cuts and tax increases.
The government now foresees a budget deficit next year excluding interest payments of 30.5 billion reais ($8.2 billion), or about 0.5 percent of gross domestic product, Budget Minister Nelson Barbosa said in Brasilia on Monday. That contrasts to a targeted surplus of 2 percent at the beginning of the year and a revised objective of 0.7 percent announced in July.
All 10 groups in the MSCI Brazil index retreated, led by energy shares. Petrobras also joined a plunge in crude. Vale SA, the world’s largest iron-ore producer, extended this year’s plunge to 28 percent amid fresh signs China’s slowdown is hampering global growth. Lenders Banco Bradesco SA and Itau Unibanco Holding SA lost more than 2 percent.