Bovespa Declines as Outlook for Higher Interest Rates Sinks MRV

The Bovespa index dropped to the lowest level in more than three months as speculation the central bank will raise borrowing costs dimmed the outlook for companies that sell on credit.

Homebuilder MRV Engenharia e Participacoes SA was the worst performer on the BM&FBovespa Real Estate Index, which slid the most in two weeks. Medical-diagnostics company Diagnosticos da America SA and rail shipper ALL America Latina Logistica SA declined after posting unexpected losses.

The Bovespa dropped 1 percent to 55,950.73 at the close of trading in Sao Paulo, the lowest since Nov. 16. Fifty stocks fell on the gauge while 17 rose. The real strengthened 0.3 percent to 1.9642 per U.S. dollar.

“At some point the central bank will raise the benchmark lending rate, and if stocks have already performed badly in the past few months when rates were falling, it probably won’t do any better with them rising,” Rogerio Freitas, a partner at hedge fund Teorica Investimentos, said in a phone interview from Rio de Janeiro.

Swap rates on short term contracts rose after Correio Braziliense reported without saying where it got the information that President Dilma Rousseff won’t oppose an increase in borrowing costs as the central bank begins a two-day policy meeting. Phone calls and e-mail messages to the Presidential Palace and the Finance Ministry weren’t returned.

Diagnosticos da America SA, the medical-diagnostics firm known as Dasa, tumbled 5.5 percent to 12.30 reais after posting an adjusted net loss of 1.4 million reais in the fourth quarter, compared with the average estimate for profit of 15.8 million reais among seven analysts surveyed by Bloomberg. ALL America, Latin America’s largest railroad company, fell 1.8 percent to 9.70 reais.

Corporate Earnings

Twenty-one of 33 companies on the Bovespa index that have already reported fourth-quarter earnings trailed analysts’ estimates, according to data compiled by Bloomberg.

The Bovespa rose as much as 1.3 percent earlier as exporters gained on speculation that demand for commodities will increase as policy makers around the world maintain stimulus measures.

Paper maker Klabin SA advanced 2.7 percent to 13.58 reais. Sugar-cane processor Cosan SA Industria & Comercio climbed 2.8 percent to 47.99 reais as the government was said to be planning to reduce taxes on ethanol and diesel fuel to curb inflation.

Relative Value

The Bovespa has dropped 12 percent from this year’s high on Jan. 3 on concern that accelerating inflation may curb Brazil’s economic recovery and the government’s interventionist policies may hurt profits in industries including utilities and energy. The MSCI BRIC Index of shares in Brazil, Russia, India and China has slid 4.6 percent over the same period.

Brazil’s benchmark equity gauge trades at 11.5 times analysts’ earnings estimates for the next four quarters, compared with 10.5 for the MSCI Emerging Markets Index of 21 developing nations’ equities, according to data compiled by Bloomberg.

Trading volume for stocks in Sao Paulo was 7.65 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 7.56 billion reais this year through March 1, according to data compiled by the exchange.

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