Brazil Real, Stocks Rise as China Rally Sparks Appetite for Risk

  • Currency rises from near 12-year low as global tenders advance
  • Benchmark equity gauge climbs to highest level in a month

Brazil’s real rose and stocks led gains in the Americas after a rally in China, the South American nation’s top trading partner, bolstered global appetite for riskier assets.

The real gained 0.8 percent gain to 3.8298 per dollar, joining a rally in emerging-market currencies. The Ibovespa added 2.5 percent to 48,553.10 to close at a one-month high after a late-day advance in China signaled state support for equities. The rallies provided some relief for traders after the currency traded near a 12-year low Tuesday amid concern Brazil’s government will struggle to shore up its budget and ward off more credit-rating downgrades.

"The surge in China is helping Brazilian assets while it eases risk aversion,” said Martial Godet, the head of Europe and emerging-market equities and derivatives strategy at BNP Paribas SA in Paris.

Equities in developing nations climbed toward the highest level this month and currencies rose as the rally in Shanghai eased concern about market turmoil in China. Emerging-market shares had tumbled to a six-year low in August on concern that a further slowdown of the Asian country would dim demand for commodities. Raw-material companies account for a quarter of Brazil’s equity gauge.

State-controlled oil producer Petroleo Brasileiro SA surged with crude. Petrobras, as the producer is known, has said that its investments in offshore production are economically viable with the commodity above $45. A measure of energy companies in the MSCI Brazil Index climbed 6.5 percent.

Brewer Ambev SA extended a two-day advance as its controlling shareholder, Anheuser-Busch InBev SA, plans to make an offer to buy SABMiller Plc.
Pulp producers Fibria Celulose SA and Suzano Papel e Celulose SA, which get most of their revenue from exports, were the worst performers on the gauge as the Brazilian currency strengthened.

Even after today’s advance, the real is still down 38 percent over the past 12 months, the worst performance among the world’s major currencies, amid concern the government will struggle to improve finances as the country heads for its longest recession since the 1930s. President Dilma Rousseff’s efforts to trim spending and raise taxes have met resistance from lawmakers concerned that the moves will hurt Brazil’s growing middle class.

The country’s central bank may lift its benchmark interest rate again if economic conditions worsen, Agencia Estado reported citing a member of the government’s economic team. Worsened economic conditions may include changes in currency level or deterioration in the inflation outlook, according to the agency. The rate, known as Selic, was kept at 14.25 percent last month.

The rally in Brazilian assets Wednesday might be short-lived amid a lack of political consensus, said Huang Kuo Seen, a fixed-income manager at Schroders Investment Management Brasil. While Finance Minister Joaquim Levy proposed measures this week to trim deficits, it could be difficult to win passage because Rousseff is facing record-low popularity amid calls for her resignation as prosecutors probe graft allegations at Petrobras.

Tension heated up after Levy blamed Congress for Standard & Poor’s move to cut the nation’s credit rating to junk last week. The president of the lower house, Eduardo Cunha, said the downgrade was due to Levy’s “lack of competence.”

"There’s little chance that the fiscal adjustment package announced this week will be approved as is," said Jason Vieira, the chief economist at Infinity Asset Management, in Sao Paulo. The firm oversees 200 million reais ($52.2 million) of assets.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, advanced 0.02 percentage point to 15.01 percent.

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