Brazil’s Stocks Advance as New Government Fuels Growth Optimism

The Long Road Ahead for Brazil's Economy
  • Vice President Temer takes over as the country’s top leader
  • Meatpacker JBS gains the most since 2008 on U.S. listing

Brazilian stocks extended one of the world’s biggest rallies after the Senate voted to suspend President Dilma Rousseff, clearing the way for a new government investors are wagering will be better able to pull the country out of its worst recession in a century.

The Ibovespa index rose 0.9 percent to 53,241.32 at the close of trading in Sao Paulo, led by gains in companies that benefit from consumer demand. Drugstore chain Raia Drogasil SA rose to a record. Lenders Itau Unibanco Holding SA and Banco Bradesco SA were among the biggest contributor’s to the gauge’s advance.

The benchmark equity index Ibovespa has risen 23 percent in 2016, with energy companies and banks leading the advance, as the process to impeach Rousseff for allegedly breaking budget laws gained momentum. After the Senate this morning voted to suspend her from office, investors’ attention now turns to Vice President Michel Temer, who took over as interim president and moved swiftly to form his cabinet, appointing former central bank chief Henrique Meirelles as finance minister.

"We’ve turned the page finally," said Alvaro Bandeira, the chief economist at the brokerage Modalmais in Rio de Janeiro. "The country and the markets are much more confident now, and that makes a huge difference to fix the economy. Temer has a lot to do -- he has to be clear, fast and effective. But the most important is to be in the right direction."

Meatpacker JBS SA surged the most since 2008 on plans to list shares in New York as part of a project to compete abroad. Retailer Lojas Renner SA rose to the highest in seven weeks after announcing an increased expansion target and the start of operations in Uruguay.

It was a "happy coincidence" that the company announced the new strategy on Thursday, said Renner’s Chief Executive Officer, Jose Gallo.

"The universe is conspiring in our favor," he said in an interview from Porto Alegre, Brazil, where the retailer is based. "Brazil’s situation has deteriorated a lot, and the country needs structural reforms."

Further gains in the Ibovespa may be limited as the change in government has been mostly priced in and investors will now focus on progress fixing Brazil’s economy, according to Raphael Figueredo, a technical analyst at the brokerage Clear Corretora.

Most of the Brazilian companies that have already reported first-quarter results posted sales and earnings that trailed analysts’ estimates, according to data compiled by Bloomberg. Gross domestic product is forecast to shrink 3.86 percent this year after contracting 3.8 percent last year.

"The Ibovespa is testing a strong resistance at 53,700 points, which is a watershed," Figueredo said from Sao Paulo. "One stage of the reform process is over, but now the investor is looking for more clues on Temer’s handbook."

The Ibovespa is trading at 12.6 times estimated earnings. That’s 13 percent above its three-year average and 11 percent more expensive than the MSCI Emerging Markets Index.

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