Brazil Stocks Decline as Petrobras Slump Overshadows Valuations

  • State-controlled company falls with crude near 12-year low
  • Financial stocks including Itau attract long-term investors

Brazil’s stocks posted its biggest five-day slump in more than a year as state-controlled oil producer Petroleo Brasileiro SA tumbled amid a drop in crude prices and a cut in output and spending.

Petrobras, as Petroleo Brasileiro is known, slumped 9.2 percent to 5.53 reais, the worst performance on the benchmark Ibovespa index. Oil dropped below $30 a barrel in New York for the first time in 12 years, dimming the outlook for the Brazilian producer’s offshore investments. While forecasting crude at $45 this year, the company cut spending and reduced estimates for its production growth.

"Prospects for Petrobras only get worse," Raphael Figueredo, an analyst at brokerage Clear Corretora, said from Sao Paulo. "It’s hard to see when the bleeding will end."

The Ibovespa fell 1.1 percent to 39,513.83 at the close of trading in Sao Paulo as half of its 61 stocks declined.

Petrobras slashed its business plan in the five years through 2019 to $98.4 billion, the latest adjustment to the original $130 billion in programmed outlays it announced last year, it said Tuesday in a filing. The company reduced its 2020 target for Brazilian oil production by 3.6 percent to 2.7 million barrels a day.

The benchmark equity index gained as much as 0.8 earlier as investors took advantage of low valuations. Lender Itau Unibanco Holding SA climbed 0.5 percent to 24.59 reais and insurance company BB Seguridade Participacoes SA advanced 1.7 percent to 23.23 reais.

Financial stocks are trading at 6.25 times estimated earnings, which is 39 percent below their 10-year average, according to data compiled by Bloomberg. That provides an attractive entry point for traders betting on a long-term recovery, according to Figueredo. Investors are buying shares of companies they view as best positioned to whether the country’s economic slump amid forecasts for the worst recession in more than a century.

The Ibovespa fell for the third consecutive year in 2015 and has already lost 8.9 percent in 2016 as a political crisis fueled by a corruption scandal has paralyzed the economy by discouraging businesses and consumers.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE