Brazil’s Stocks Join Global Rout as Petrobras Follows Crude Drop

Brazil Is Unraveling Before Our Eyes
  • Oil producer is among worst performers on the Ibovespa index
  • Uncertainties regarding global growth fuel investors’ caution

Brazil’s benchmark Ibovespa stock index joined a global rout, erasing this week’s advance, on concern gains in the past days may have been excessive considering prospects for growth in Latin America’s largest economy.

Lenders Itau Unibanco Holding SA and Banco Bradesco SA contributed the most to the gauge’s decline, and state-controlled oil producer Petroleo Brasileiro SA followed a drop in crude that sent prices below $50. Planemaker Embraer SA fell to the lowest in two years after announcing Chief Executive Officer Frederico Curado will be replaced.

The Ibovespa had advanced earlier this week on speculation that a recovery in prices of commodities, which account for 46 percent of Brazil’s exports, would help to pull the country out of recession as Michel Temer’s government puts in place a plan to shore up the country’s finances and revive domestic demand. However, uncertainties over the global economy before the Federal Reserve meets next week to decide on rates made investors more cautious all over the world, according to Pablo Spyer, the operational director at Mirae Asset Wealth Management in Sao Paulo.

"Aversion to risk has increased as the market adjusts expectations after a strong move such as the one we had," Spyer said. "We should expect more volatility for Brazilian assets."

The Ibovespa fell 3.3 percent to 49,422.16 at the close of trading in Sao Paulo as all of its 59 stocks declined. The benchmark equity index is trading at 11.5 times estimated earnings, almost in line with its three-year average ratio, data compiled by Bloomberg show. Trading volume was 20 percent below the average in the previous 30 days.

Itau fell 5.1 percent, Bradesco declined 4 percent, and Embraer retreated 5 percent. Crude producer Petrobras dropped 4.4 percent. A gauge of energy stocks was the worst performer among 10 industry groups.

Global stocks headed for their biggest drop in four months as investors braced for a series of key events that could renew turbulence in financial markets. Bonds rose, sending yields from Japan to Germany to all-time lows, before next week’s Federal Reserve meeting and Britain’s referendum on European Union membership this month. Investors also face simmering concerns over the health of the economy, lackluster corporate profits and the effectiveness of central-bank stimulus.

"Investors are playing more defensively worldwide," said Hersz Ferman, an economist at brokerage Elite Corretora in Rio de Janeiro. "There are important events in the coming weeks, such as the decision on U.S. interest rates and the U.K. referendum. Those may have important consequences for everybody."

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