Brazilian Stocks Slump as Vale Declines After China Trade Data

  • Commodity producers fall as the Asian country's trade slowed
  • Miner follows drop of iron ore to lowest in seven years

Brazilian stocks fell for a third straight day as raw-material producers tumbled following a report that showed trade dropped in China, the biggest foreign buyer of goods from the Latin American nation.

Vale SA, the world’s largest iron-ore miner, plunged to a 12-year low as the price for the raw material used to make steel declined to its lowest level in seven years. China’s exports fell for a fifth month and imports slumped for a record 13th straight month, albeit at a slower-than-estimated pace, the country’s customs administration said Tuesday.

The report adds to the grim outlook for companies in Brazil that are also struggling with a drop-off in domestic demand as unemployment climbs amid the longest recession since the Great Depression. Analysts expect Brazil’s economy to contract 3.5 percent this year and 2.31 percent in 2016, a central bank survey released Monday shows.

"There’s a lot of bad news coming from everywhere for investors in Brazil," Jason Vieira, the chief economist at Infinity Asset Management, said from Sao Paulo. "It’s hard to remember such bad times for our market."

The Ibovespa fell 1.7 percent to 44,443.26 at the close of trading in Sao Paulo as all except seven of its 63 stocks fell. The index traded at 10.3 times estimated earnings, which is 15 percent below the ratio of an MSCI gauge of emerging-markets shares. Data from the exchange showed foreign investors took 818.6 million reais ($215.1 million) out of Brazilian equities in the first week of this month.

Vale’s shares slid 5.3 percent to 9.32 reais, leading losses on an MSCI gauge of Brazilian raw-materials producers, which slumped to the lowest since May 2004.

The Ibovespa is poised to post its third consecutive year of losses as a political crisis fueled by a corruption scandal undermined President Dilma Rousseff’s efforts to trim a growing budget deficit. Brazil has suffered four credit-rating downgrades on Rousseff’s watch as a slump in commodity prices throttled the economy and the government increased spending to try to jump-start growth, eroding fiscal accounts.

The president is now fighting to avoid impeachment on allegations that she breached Brazil’s fiscal responsibility law in 2014 and 2015 and that her campaign received funds stemming from fraudulent activities. She denies any wrongdoing. A letter from Vice President Michel Temer spurred speculation there’s a growing rift between the two, which could make her removal from office easier. While investors in the past have been split about whether impeachment would be positive for Brazil, many now say it may be the only way to resolve a months-long political stalemate.

"Tension has increased a lot, and we need to find a solution to this paralysis urgently," Vieira said.

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