Brazil Stocks Leading Global Gains as Real Soars on M&A Outlook

  • Lender Itau contributes most to advance after earnings beat
  • Cetip and BM&FBovespa climb after confirming merger talks

Brazilian stocks posted the world’s biggest gains and the currency rallied to a three-week high as a pickup in mergers and acquisitions signals investors see value in the country’s assets.

Financial stocks advanced after Itau Unibanco Holding SA, the region’s biggest lender, reported better-than-forecast earnings. Clearinghouse Cetip SA surged after confirming it had been approached by exchange operator BM&FBovespa SA for a possible merger. Consumer goods and pharmaceutical products maker Hypermarcas SA rose the most on record following its agreement to sell its personal-care and beauty unit to Coty Inc.

The deals are a positive sign in a country rocked by recession, a sweeping corruption scandal and a political crisis that’s fueling calls to impeach President Dilma Rousseff, issues that made the real the world’s worst performing major currency this year and sent the benchmark stock index’s valuation to half the level of global peers. The Hypermarcas deal shows buyers are starting to find good opportunities in Brazil after the selloff, according to Raphael Figueredo, an analyst at the brokerage Clear Corretora.

"This year is already lost, so investors are excited about long-term prospects," he said from Sao Paulo. "There are still a lot of uncertainties on the radar, but good opportunities may pop up."

The Ibovespa advanced 4.8 percent, the most in almost a year, to 48,053.67 at the close of trading in Sao Paulo as 56 of its 63 stocks gained. The gauge traded at 1.12 times book value, or assets after subtracting liabilities, according to data compiled by Bloomberg. That’s about half the average valuation of global shares. The real strengthened 2.3 percent.

Itau, the heaviest-weighted stock on the Ibovespa, climbed 6.4 percent. Cetip advanced 8.4 percent to a record 36.95 reais, while BM&FBovespa gained 8.8 percent. State-controlled oil producer Petroleo Brasileiro SA rose 10 percent, the most in a month, as higher crude prices improved prospects for the company’s offshore production.

Billionaire Abilio Diniz, the chairman of frozen-dinners maker BRF SA, told reporters in New York on Sunday that Brazil is "on sale" and "very cheap for foreign investors."

Hypermarcas was the best performer on the benchmark equity gauge, climbing 21 percent, the most since its debut in April 2008. The company will use proceeds from the sale of the personal-care unit to prepay as much debt as possible, according to Chief Executive Officer Claudio Bergamo. A dividend payment may also be considered if there’s cash left, he said during the company’s third-quarter conference call with analysts.

Even considering the Hypermarcas deal, this year’s volume of mergers and acquisitions in Brazil is the lowest since 2007. Entrepreneurs have been reluctant to invest as consumer confidence in the country fell to a record low in September while the government cuts spending and social programs in order to trim its budget deficit. Latin America’s biggest economy is forecast to shrink 3.05 percent in 2015 and 1.5 percent next year, according to a weekly survey of 100 economists by the central bank.

The Ibovespa has declined 17 percent from this year’s peak in May as Rousseff’s administration struggles to get Congress approval to measures intended to shore up the country’s finances.

The real also got a boost on speculation government may score a victory in its efforts to shore up fiscal accounts this week when Brazil’s lower house is expected to vote on a bill to encourage the repatriation of overseas assets, newspaper O Estado de S. Paulo said.

Pulp producers Fibria Celulose SA and Suzano Papel & Celulose SA, which get most of their revenue from exports, declined.

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