- Petrobras also among biggest decliners on Ibovespa index
- Investors abandon riskier assets before referendum in Britain
The Ibovespa led losses among Latin America equity benchmarks while the real ended closed to the weakest level in a week amid increased angst over the possibility of the U.K. leaving the European Union and as commodities slumped.
Vale SA, the world’s largest iron-ore producer, and state-controlled oil producer Petroleo Brasileiro SA were among the index’s biggest losers on Tuesday. Raw-material companies, which account for 21 percent of the Ibovespa’s weighting, have been hit as the prices of their products fall on the uncertainties regarding global growth. The real closed close to its weakest level since June 6, at 3.4822 per dollar.
Brazilian assets have joined a slide in emerging markets over the past month as tension caused by speculation over Europe’s future clouds the outlook for riskier investments and Latin America’s largest economy, which is already facing its worst recession in a century. Data released on Tuesday showed that retail spending is still weak, adding to pessimism amid concern a global slowdown will make an export-led recovery more difficult to achieve.
"The referendum in Britain makes international investors very cautious, and it’s not what we need now," Jason Vieira, chief economist at Infinity Asset Management, said from Sao Paulo. "Brazil’s situation looks bad from every angle."
The Ibovespa dropped 2 percent to 48,648.29 in Sao Paulo as all but two of its 59 stocks fell. Vale and Petrobras dropped at least 3.7 percent, while the Bloomberg Commodity Index slumped. The benchmark gauge’s 10-day historical volatility rose to the highest level in three weeks, according to data compiled by Bloomberg.
Britain’s referendum on EU membership has emerged as this week’s main focus as four opinion polls put the “Leave” campaign ahead of “Remain”. Britain’s best-selling newspaper, The Sun, backed an out vote.
The global market reaction blunted positive sentiment generated by the deepening of investigations former President Luis Inacio Lula da Silva, an ally of suspended President Dilma Rousseff and a potential candidate for presidential elections in 2018. The currency slumped 33 percent last year amid a political crisis before lawmakers voted to initiate impeachment proceedings against Rousseff.
The real has rallied the most among major peers this year on prospect that the removal of Lula and Rousseff’s party from power, and the installation of a new government led by Acting President Michel Temer, would make it easier to pass legislation to support the country’s economy and improve fiscal accounts. On Tuesday, optimism grew after O Globo reported that Supreme Court judge authorized Judge Sergio Moro, a leading figure in the $1.8 billion so-called Carwash corruption probe, to continue investigating Lula.
"This would be a positive driver for the real, as it moves away the possibility of Lula returning" as a candidate in 2018 elections, said Eduardo Longo, the head of fixed income at Quantitas Gestao de Recursos SA.
Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.03 percentage point to 12.69 percent.