Ibovespa Drops as Earnings Misses Highlight Depth of Recession

  • Minister said 2016 fiscal deficit may reach 96.7 billion reais
  • Homebuilder Cyrela joins companies hit by domestic slowdown

The Ibovespa stock index ended its longest streak of weekly gains in almost two years as a disappointing earnings season highlights the depth of Brazil’s recession and a worsening fiscal outlook reinforces the notion that the country isn’t any closer to turning a corner.

Lenders Itau Unibanco Holding SA and Banco Bradesco SA contributed the most to the equity gauge’s drop. Homebuilder Cyrela SA tumbled after earnings trailed analysts’ estimates, joining other companies dependent on domestic demand that are struggling amid the worst recession in a century. The BM&FBovespa Real Estate Index posted its worst week in over two months.

"Corporate results released recently show how bad the situation in Brazil is," Paulo Henrique Amantea, an analyst at the brokerage Picchioni, said from Belo Horizonte. "Investors are very discouraged because there are no signals of improvement in the economic strategy."

The Ibovespa lost 0.1 percent to 49,657.39 at the close of trading in Sao Paulo, extending this week’s decline to 2.3 percent. Itau fell 1.1 percent, Bradesco lost 1.8 percent and Cyrela retreated 4.3 percent.

Finance Minister Nelson Barbosa said Wednesday the country may post a primary fiscal deficit of 96.7 billion reais ($26.2 billion) as the shrinking economy weighs on tax collection. Brazil’s credit rating was downgraded to junk last year as President Dilma Rousseff’s administration, paralyzed by a corruption scandal, failed to shore up the country’s budget.

Average earnings miss/beat for Ibovespa companies
Average earnings miss/beat for Ibovespa companies

After rising 17 percent this year through the end of last week on speculation that Rousseff will be impeached, Brazil’s benchmark equity index has lost steam as investors focus on corporate profits. Fourth-quarter earnings have trailed analysts’ estimates by an average 40 percent, according to data compiled by Bloomberg on 53 companies that have reported results.

Economists forecast Brazil will contract 3.6 percent this year after the economy shrunk 3.8 percent in 2015.

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