Ibovespa Declines With Petrobras as Political Crisis Escalates

  • President Dilma Rousseff ousting bid filed by her opponents
  • Petrobras contributes most to drop in stock gauge as oil falls

Brazil’s stocks dropped for a second day, led by oil producer Petroleo Brasileiro SA, amid speculation that heightened political turmoil will deepen the nation’s economic recession.

Price/Estimated Earnings
Price/Estimated Earnings

Traders pushed down the value of equities as three high-profile lawyers filed a request to open impeachment proceedings against President Dilma Rousseff on allegations she doctored fiscal accounts. She denies wrongdoing and likens efforts to remove her from office to a coup.

“We don’t know how this is going to end, but it has to end so the country is able to move forward," Vitor Suzaki, an analyst at brokerage Lerosa Investimentos, said from Sao Paulo. “Investors are concerned that the political turmoil will continue paralyzing the economy and hurting companies.”

Brazilian shares have tumbled 19 percent from this year’s peak in May as the government struggles to shore up finances at Latin America’s largest economy amid a widening corruption scandal and forecasts for the longest recession since the 1930s. Initial public offerings have dried up, and mergers and acquisitions are at a decade low. Fitch Ratings on Thursday cut the nation to the cusp of junk, the fourth downgrade under Rousseff’s watch.

Stock Valuation

The Ibovespa fell 0.1 percent to 47,025.87 at the close of trading in Sao Paulo, extending a two-day slide to 0.9 percent. The gauge traded at about 11 times estimated earnings, or 19 percent below the valuation of the MSCI Emerging Markets Latin America Index. The real lost 0.9 percent to 3.9404 per dollar. Oil sank 2.4 percent in New York.

All 10 groups in the MSCI Brazil Index retreated, led by energy shares. State-controlled Petrobras extended this year’s plunge to 23 percent. Vale SA, the world’s largest iron-ore producer, rallied as a weaker real improved the outlook for its export profits. Cosmetics maker Natura Cosmeticos SA advanced ahead of its earnings release.

The equity benchmark also dropped after Planning Minister Nelson Barbosa said the government expects to announce a revised fiscal target for 2015 by the end of this week. All four of Brazil’s largest newspapers have forecast a deficit excluding interest payments that may surpass 50 billion reais. The deficit may reach 90 billion reais in the worst scenario, which includes the government paying off all its debts to public banks, Folha de S. Paulo reported without saying where it obtained the information.

Central Bank

As the political and economic crises unfold, traders have scaled back expectations that the central bank will raise interest rates fast enough to slow inflation, which is already running at more than double its target of 4.5 percent. They now see policy makers holding rates at 14.25 percent on Wednesday before boosting them a quarter-point in November. As recently as Oct. 1, they saw successive half-point increases.

In addition to Brazil’s turmoil, a selloff in its top trading partner also contributed to the slide in stocks. China’s equities led world losses as data this week showed the Asian nation grew at the slowest pace since 2009, potentially damping demand for imports.

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