Bovespa Stock Index Advances as Cesp Leads Power Utility Rebound

The Bovespa stock index snapped a three-day losing streak as Cia. Energetica de Sao Paulo led a rally among utilities on speculation that investors overreacted to reports that Brazil is considering energy rationing.

Cesp, as the company is known, led gains on the index. Centrais Eletricas Brasileiras SA rebounded after dropping the most in six weeks yesterday on concern low water levels at reservoirs feeding hydropower dams may prompt the government to ration electricity. Retailer Lojas Americanas SA led gains by companies that sell in the local market after a report showed that inflation slowed more than economists forecast.

The Bovespa advanced 0.7 percent to 61,578.58 at the close of trading in Sao Paulo. Fifty stocks rose on the measure while 19 fell. The real was little changed at 2.0408 per dollar. Swap rates on the contract expiring in January 2014 fell two basis points, or 0.02 percentage point, to 7.14 percent.

“The chances of electricity rationing exist but are low, and investors may have overreacted a little yesterday,” Gustavo Mendonca, an economist at Oren Investimentos, said by phone from Rio de Janeiro. “The market will be watching this issue very closely. The supply of energy is linked to the amount of rain we see near the reservoirs, so things can change very quickly depending on the weather.”

Folha de S.Paulo reported on Jan. 7 that President Dilma Rousseff called an emergency meeting to discuss the level of water reservoirs, and O Estado de S.Paulo said yesterday that the government is considering the risk of energy rationing.

Reservoir Levels

Reservoirs in northeastern Brazil on average were 32 percent full last month, less than the 34 percent minimum the government considers safe for the region’s dams, according to data on the national power grid operator’s website. Government officials convene today in Brasilia to discuss the outlook for energy supply.

Cesp rose 6.7 percent to 18.90 reais. Eletrobras, as Centrais Eletricas is also known, gained 4.3 percent to 10.11 reais after plunging 9.4 percent yesterday.

To offset the low reservoir levels, power distributors are spending an extra 800 million reais a month to purchase electricity from natural-gas fired plants, which amounts to half their earnings before interest, taxes, depreciation and amortization, said Nelson Leite, president of the power distributors association Abradee. Brazil may grant loans to help utilities weather the rising costs through the BNDES development bank, he said.

“The risk of a debt default or investment interruption is real,” Leite said in a telephone interview from Brasilia today. “The government has signaled to us that they will probably create credit lines from the BNDES to meet our cash flow needs.”

IGP-M Report

Lojas Americanas jumped 4.4 percent to 18.33 reais. Online retailer B2W Cia. Global do Varejo rose 3.1 percent to 15.50 reais.

The IGP-M index of wholesale, construction and consumer prices rose 0.41 percent in the 10-day period ending Dec. 31 after climbing 0.69 percent in the previous reading, according to a report from the Getulio Vargas Foundation today. Economists surveyed by Bloomberg had expected an increase of 0.50 percent.

Oil company HRT Participacoes em Petroleo SA gained 1.2 percent to 5.12 reais after saying in a regulatory filing that tests showed gas potential in a well in Amazon’s Solimoes Basin.

The Bovespa entered a bull market on Jan. 3 after rising 21 percent from last year’s low on June 5 as stimulus from central banks around the world eased concern that economic growth might miss expectations and borrowing costs at a record low in Brazil boosted equity demand. The index has since pared its gain to 17 percent.

Brazil’s benchmark equity index trades at 11.3 times analysts’ earnings estimates for the next four quarters, which compares with a ratio of 10.9 for MSCI Inc.’s measure of 21 developing nations’ equities, data compiled by Bloomberg show.

Trading volume was 7.08 billion reais in stocks in Sao Paulo today, according to data compiled by Bloomberg. That compares with a daily average of 7.25 billion reais in 2012, according to data compiled by the exchange.

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