Brazilian Stocks Decline as Economic Concern Offsets Impeachment

  • Inflation accelerated through mid-April, joblessness rose
  • Lender Itau contributes the most to decline of Ibovespa

The Ibovespa fell from its highest level in 10 months after discouraging economic data curbed investors’ optimism regarding a change in Brazil’s government.

Data published on Wednesday showed inflation accelerated more than forecast in the month through mid-April and unemployment increased, underlining the difficulties facing Latin America’s largest economy. Brazilian stocks have been the best-performing in the world over the past three months as the process to impeach President Dilma Rousseff fueled bets that a new administration could help restore business confidence.

"Brazil’s reality is bad and should get worse," Alvaro Bandeira, chief economist at the brokerage Modalmais, said from Rio de Janeiro. "Investors should calibrate their optimism considering that the reform of policies may take long. Prospects are more positive now, but nothing is guaranteed."

Lender Itau Unibanco Holding SA contributed the most to the benchmark equity gauge’s decline. Homebuilder MRV Engenharia e Participacoes SA was the worst performer on the index after reporting a 10-percent decline in booked sales in the first quarter.

The Ibovespa fell 0.1 percent to 53,630.93 at the close of trading in Sao Paulo as 38 of its 61 stocks declined. The index earlier slumped 1 percent, and pared losses after Brazil’s Supreme Court postponed a ruling on whether former president Luiz Inacio Lula da Silva can take a cabinet position.

Despite Wednesday’s drop, the Ibovespa is close to its most expensive level in 11 months. It’s trading at 13.7 times estimated earnings, which is also 14 percent above the MSCI Emerging Markets Index’s. Itau lost 1.9 percent, and MRV tumbled 6 percent.

Ibovespa’s Year-To-Date Rally Makes Its Stocks More Expensive
Ibovespa’s Year-To-Date Rally Makes Its Stocks More Expensive

Investors are closely watching Brazil’s political crisis. The country’s Senate leadership on Tuesday started defining the next steps in the process to oust Rousseff, indicating that the vote that could temporarily remove the president from power will occur in mid-May.

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