Brazil Stocks Fall for Third Week as Petrobras Drops With Crude

  • Benchmark index extends third consecutive weekly decline
  • Shares of Brazilian commodity producers at lowest since 2003

The Ibovespa added to a third weekly decline as a slump in commodity prices sent Brazilian raw-material producers to the lowest in 12 years.

State-controlled oil producer Petroleo Brasileiro SA contributed the most to the benchmark’s slide as crude plunged to the lowest since 2003 on speculation international sanctions on Iran may be lifted soon, allowing the country to increase oil shipments. Iron-ore miner Vale SA extended this year’s slump to 29 percent. Commodity companies account for about 20 percent of the Ibovespa’s weighting.

Brazilian stocks are at their lowest levels in almost seven years as the country faces the deepest recession since 1901. The central bank said today that economic activity contracted 6.14 percent in November from a year ago.

“There’s a lot of bad news for Brazil’s market coming from everywhere,” Alvaro Bandeira, an economist at Banco Modal, said from Rio de Janeiro. “We can’t see a light at the end of the tunnel for stocks as the international and domestic scenario remain so uncertain.”

The Ibovespa slumped 2.4 percent to 38,569.13 at the close of trading in Sao Paulo, extending this week’s drop to 5 percent. All but 11 of the gauge’s 61 stocks sank on Friday.

Vale lost 3.1 percent as the MSCI Brazil/Materials index fell to the lowest level since 2003. Petrobras, as Petroleo Brasileiro is known, sank 9.1 percent. Lender Itau Unibanco Holding SA was the second-biggest contributor to the decline after the oil producer, falling to a 28-month low.

Latin America’s biggest economy is forecast to shrink 2.99 percent this year following a 2.95 percent contraction in 2015, according to a weekly survey by the central bank. A corruption scandal involving Petrobras, politicians and the country’s biggest builders has been fueling a political crisis that has threatened President Dilma Rousseff’s position and paralyzed the economy.

Brazil was cut to junk by two credit-rating companies last year after Finance Minister Joaquim Levy failed to get support to measures intended to shore up the nation’s finances. His replacement, Nelson Barbosa, is trying to overcome skepticism that he’ll fare better at turning around the country.

Economic indicators released on Friday reinforced the negative outlook for Brazilian companies. Brazil’s industrial-capacity utilization fell to 77 percent in November from 77.4 percent a month earlier, a report from the National Confederation of Industry said. Unemployment increased to 9 percent in November, the highest in at least three years, according to the national bureau of statistics.

"The bad news shaping sentiment towards Brazil keeps shifting from being domestically driven to externally led," said Nicholas Spiro, a London-based managing director at Spiro Sovereign Strategy. "This week it has been mostly about China and the oil price. But next week it could once again be more about Rousseff and the Petrobras scandal. All these risks and vulnerabilities are feeding on each other. It’s a vicious circle."

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