Ibovespa Rises Most in World as Commodity Gain Lifts Currency

  • Iron-ore miner Vale leads raw-materials producers' advance
  • Cheap valuations lure investors to lenders Itau, Bradesco

The Ibovespa led gains among the world’s stock markets Wednesday as a rebound in commodity prices spurred a rally in Vale SA and helped lift Brazil’s real.

The benchmark index climbed 2.6 percent, the most among more than 90 global gauges tracked by Bloomberg. Vale, the world’s largest iron-ore miner, led gains among raw-material producers. Lenders Banco Bradesco SA and Itau Unibanco Holding SA contributed the most to the Ibovespa’s advance after the stocks tumbled Tuesday on concern that a rise in bad loans will sap profit. The real added 2.4 percent, bolstered by the outlook for more dollars coming into the country from grain and metal exports.

Source: Bloomberg
Source: Bloomberg

As Brazil’s benchmark equity index trades close to the cheapest in almost two years, investors are buying stocks that have suffered disproportionately in recent weeks, and banks are among the cheapest considering the quality of their businesses, according to Adeodato Volpi Netto, the head of capital markets at the equity research firm Eleven Financial. Itau slumped 8.7 percent Tuesday after setting aside more money for bad loans.

"That drop was total nonsense," Volpi Netto said from Sao Paulo. "Its delinquency guidance was very solid and responsible. Investors and market projections and expectations fail quite often. Clarity should be rewarded, not penalized."

The country’s benchmark stock index has dropped 44 percent over the past 12 months in dollar terms, among the five worst performances in the world, according to data compiled by Bloomberg. Brazil is facing its worst recession in more than a century with unemployment and inflation at a decade high.

The Ibovespa added 2.6 percent to 39,588.82 at the close of trading in Sao Paulo as 51 of its 61 stocks climbed. The index traded at 9.9 times estimated earnings, near the lowest since March 2014 and compared with 10.7 for the MSCI Emerging Markets Index.

Vale added 5.9 percent as the Standard & Poor’s GSCI index of commodities rose 3.6 percent. Petrobras, as Petroleo Brasileiro SA is known, advanced 3.4 percent as oil prices soared. Commodities account for about half of Brazil’s exports, and 20 percent of the Ibovespa’s weighting.

Bradesco advanced 4.8 percent after canceling a capital increase of as much as 3 billion reais ($760 million). Itau gained 4.1 percent after a measure of its valuation dropped toward the lowest in a decade.

"It seems that we’ve approached an over-sold level, and some companies become attractive again," Jason Vieira, the chief economist at Infinity Asset Management, said from Sao Paulo.

Homebuilder Rossi Residencial SA surged 59 percent after newspaper Valor Economico reported, without saying how it got the information, that the company plans to sell its unit EntreVerdes for as much as 500 million reais.

The real’s advance left it up 1.8 percent this year, the best performance in Latin America. Still, the currency is down 31 percent in the past 12 months as Brazil contracts and President Dilma Rousseff struggles to shore up the budget amid efforts to impeach her. The country lost its investment-grade rating last year, and legislators booed Rousseff on Tuesday as she urged Congress to approve the revival of the CPMF, a financial transaction tax.

"Stabilization in commodities, but also in oil, seem to lend support to the real," said Ipek Ozkardeskaya, an analyst at London Capital Group. "Still, Rousseff has to play a very delicate game. She is under domestic and international pressure to strengthen her financial position."

Swap rates on contracts due January 2021, a reflection of wagers on borrowing costs, fell 0.08 percentage point to 15.81 percent. The government is pressuring the central bank to cut rates, O Estado de Sao Paulo wrote, without saying how it got the information. On Monday, Bloomberg reported that a member of Rousseff’s economic team, who asked not to be identified, said policy makers see the possibility of cutting the Selic as early as this year.

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