Brazil’s Stocks Fall as Fed Concern Adds to Local Economic Woes

  • Risk aversion is exacerbated by uncertainties over recovery
  • Commodity producers Usiminas, Petrobras fall most on Ibovespa

Brazil’s Ibovespa joined a global rout Thursday as material producers including miner Vale SA and oil giant Petroleo Brasileiro SA slumped on concern that the Federal Reserve may start raising interest rates as soon as next month, prompting investors to pare bets in riskier markets.

Brazil’s benchmark equity gauge fell for a fifth straight day. Petrobras, as Petroleo Brasileiro is known, contributed the most to the index’s drop, and Vale declined to the lowest price since April 7. Usinas Siderurgicas de Minas Gerais SA fell the most among steelmakers in the Western Hemisphere as iron ore dropped to a two-month low. Commodity producers account for 21 percent of the Ibovespa’s weighting.

The flight-to-quality move was rekindled Wednesday after minutes from the Fed’s April meeting indicated policy makers are willing to increase rates in June if the economy continues to improve. Those news are negative especially for Brazil, where a new government took office last week with the job of shoring up the country’s finances and fighting a recession.

"The global risk aversion gets a boost in Brazil because there are still a lot of uncertainties regarding the prospects for the country’s economy," Paulo Henrique Amantea, an analyst at brokerage Guide Investimentos, said from Belo Horizonte, Brazil. "It’s not time to build more positions in Brazilian stocks. It’s time to wait to see what kind of progress the new administration will be able to make."

The Ibovespa fell 0.8 percent to a six-week low of 50,132.53 at the close of trading in Sao Paulo as 39 of its 59 stocks declined. Petrobras lost 3.9 percent. Usiminas, as Usinas Siderurgicas is known, slumped 7.4 percent, and Vale, the world’s biggest iron-ore producer, dropped 1 percent. The material fell 5.8 percent to $53.47 a metric ton.

After appointing bank executives Henrique Meirelles as Finance Minister and Ilan Goldfajn as the central bank head, acting President Michel Temer is expected to announce measures to combat the worst recession in a century. Latin America’s biggest economy is forecast to contract 3.88 percent this year after shrinking 3.8 percent in 2015.

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