Brazil Stocks Retreat After Valuations Climb to Three-Month High

How Emerging Markets Are Impacting Banks
  • Raw-material producers including mining company Vale tumble
  • Petrobras shares sink, following decline in crude prices

The Ibovespa slid after a two-day rally pushed the benchmark index’s valuations to the most expensive level in three months.

Iron-ore miner Vale SA and steelmaker Gerdau SA led declines among companies tied to raw materials. Petroleo Brasileiro SA, the state-controlled oil producer known as Petrobras, followed oil prices lower.

Brazilian equities got a boost in recent days as the outlook improved for growth and markets in China, the Latin American nation’s biggest trade partner. While that helped buoy global appetite for riskier assets, forecasts that Brazil is sliding deeper into its worst recession in a century means many investors still aren’t willing to bet big on local companies if valuations get too pricey, according to Jason Vieira, the chief economist at Infinity Asset Management.

"The gains we saw recently were clearly exaggerated," Vieira said from Sao Paulo. "Prospects for companies that depend on domestic demand remain discouraging."

The Ibovespa lost 1.7 percent to 42,520.94 at the close of trading in Sao Paulo as 50 of its 61 stocks dropped. Vale declined 4.3 percent while Petrobras slipped 2.4 percent. Even with Tuesday’s decline, the index traded at 10.7 times estimated earnings, close to the highest valuation since Dec. 26.

The Standard & Poor’s GSCI index of commodities fell 2.1 percent, and West Texas Intermediate crude for April delivery declined 0.5 percent to $31.32 a barrel. The MSCI Brazil/Materials Index fell 2.6 percent.

Pulp and paper producers Suzano Papel e Celulose SA and Fibria Celulose SA, which get most of their revenue from exports, advanced as the real weakened. Goldman Sachs Group Inc. said the currency is poised to drop another 10 percent this year while the government struggles to contain consumer-price increases and shore up its budget.

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