Bovespa Declines as Price Outlook Pushes Utilities Lower

The Bovespa index sank to a two-week low as Cia. Energetica de Minas Gerais led a plunge by electric power companies on concern the Brazilian utility regulator’s rates review may curb industry profits.

The MSCI Brazil/Utilities index tumbled the most since September in the worst performance among 10 industry groups. Light SA and Centrais Eletricas Brasileiras SA also dropped after Brazil’s electricity regulator Aneel cut the preliminary asset valuation used to estimate rate reviews for Cemig, as Brazil’s second-biggest electricity company by market value is known.

The Bovespa fell 0.6 percent to 56,030.03 at the close of trading in Sao Paulo, the lowest since Mar. 5. Forty-five stocks dropped on the gauge while 20 advanced. The real weakened 0.3 percent to 1.9899 per dollar.

“There’s speculation that the government will keep acting to hold electricity rates as low as possible, and that’s pushing stocks down,” Luis Gustavo Pereira, an analyst at Futura Corretora in Sao Paulo, said in a telephone interview. “And it’s not just about the electric sector. It’s concern that other sectors may be affected by the government’s interventions.”

Analysts at Banco Bradesco SA’s brokerage unit and Banco BTG Pactual SA said in separate research notes that Aneel’s decision signals that the regulator will limit the rates that Cemig can charge. Shares sank 14 percent to 22.20 reais.

Cemig’s forecasts already include the impact of the rate review, according to Luiz Fernando Rolla, the company’s chief financial officer. Rolla called the market’s reaction exaggerated in a teleconference today.

Growth Outlook

Light dropped 6.2 percent to 19.05 reais. Eletrobras, as Centrais Eletricas is called, lost 4.3 percent to 11.48 reais. Eletropaulo Metropolitana SA, the Brazilian unit of AES Corp., fell 4.2 percent to a record-low 10.60 reais.

While government intervention in the economy has driven some investors away from Brazilian stocks, domestic consumption will probably boost the recovery, which should be positive for the Bovespa, said Armando Senra, head of the Latin America and Iberia region at BlackRock Inc. Gross domestic product expansion slowed to 0.9 percent in 2012 from 2.8 percent in 2011, data compiled by Bloomberg show.

“We continue to be very positive about long term prospects for Brazil,” Senra said in an interview with Bloomberg Television today.

Oil company OGX Petroleo & Gas Participacoes SA added 4.4 percent to 2.62 reais, following commodities higher. Mining company Vale SA added 2 percent to 33.05 reais as Australia, the world’s biggest iron-ore exporter, raised its price estimate for the steelmaking ingredient this year to $119 from $106 in December, according to a report today from the Bureau of Resources and Energy Economics.

Iron-Ore Prices

Vale is pricing in long term iron-ore price at $80 a ton, Bank of America Corp.’s analysts including Felipe Hirai wrote in a note to clients today. Ore delivered at the Tianjin port in China fell 30 cents to $134.10 a ton, according to prices compiled by The Steel Index Ltd.

The Bovespa has retreated 12 percent from this year’s high on Jan. 3 amid concern accelerating inflation may curb Brazil’s economic recovery and the government’s interventionist policies will hurt profits in industries including utilities and energy. The MSCI BRIC Index of shares in Brazil, Russia, India and China has slid 5.9 percent over the same period.

Brazil’s benchmark equity gauge trades at 11.4 times analysts’ earnings estimates for the next four quarters, compared with 10.7 for the MSCI Emerging Markets Index of 21 developing nations’ equities, data compiled by Bloomberg show.

Trading volume for stocks in Sao Paulo was 7.82 billion reais today, data compiled by Bloomberg show. That compares with a daily average of 7.67 billion reais this year through March 18, according to data compiled by the exchange.