Brazil's Stocks Advance on Commodities' Rally, Long-Term Outlook

Updated on
  • Miner Vale joins raw-materials exporters' global gains
  • Corruption probe improves the country's image, say analysts

Brazil’s stocks climbed for the first time in four days as rising commodities prices buoyed material producers and as a fresh round of a graft investigation encouraged long-term investors to bet on local companies.

While political tension and market volatility may rise in the next few weeks after Federal Police carried out search and seizure orders at the residences of lower house chief Eduardo Cunha, the probe sends a positive signal for the future, according to Adeodato Volpi Netto, head of capital markets at the equity research Eleven Financial, and Alvaro Bandeira, economist at Banco Modal. After falling 10 percent this year, Brazil’s benchmark equity gauge is trading at 10.4 times estimated earnings, which is 32 percent below the world index’s current valuation.

Iron-ore miner Vale SA and state-controlled oil producer Petroleo Brasileiro SA were the biggest contributors to the Ibovespa index’s gain Tuesday. State-run lender Banco do Brasil SA rose for the first time in four days.

"The investigation is the best possible piece of news for investors targeting the medium and long term," Volpi Netto said from Sao Paulo. "Attracting investment to local assets necessarily requires cleaning up Brazilian business models, resulting in smaller government and less interventionism, and that’s exactly what’s happening."

The Ibovespa added 0.3 percent to 44,872.47 at the close of trading Sao Paulo, with 36 of its 63 stocks rising. Petrobras, as Petroleo Brasileiro is known, rose 2.9 percent. Banco do Brasil added 0.7 percent.

Cunha has denied that he accepted bribes and laundered money. His press office declined to comment when contacted by Bloomberg. The Federal Prosecutor’s press office said by phone it wouldn’t comment on the operation.

"It may take some time, but this investigation will make our companies and business environment better," Bandeira said from Rio de Janeiro. "Investors who were looking for a sign of hope to buy stocks may use that now. That gives stocks a boost in a day when the global mood is more positive regarding riskier assets."

Vale advanced 4.2 percent. Crude oil rallied after slumping to the lowest since February 2009, while the S&P GSCI commodities index also gained. Commodities producers account for about a fourth of the Ibovespa’s weighting.

Brazilian stocks have slumped 23 percent from this year’s peak in May as expectations President Dilma Rousseff would be able to tame a budget deficit were frustrated. A political crisis fueled by a widening corruption scandal that has entangled Petrobras and the nation’s biggest builders prevented the government from getting support to measures including expenses costs and tax raises.

As Rousseff fights against an impeachment process on allegations that she used improper accounting on government finances, which was triggered by Cunha, Moody’s Investors Service said it may cut the country to junk, following a credit rating reduction by Standard & Poor’s in September.

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