Ibovespa Posts World’s Biggest Quarterly Drop as Currency Slumps

The Ibovespa posted the biggest quarterly drop among major equity benchmarks as consumer stocks sank amid mounting concern that a weaker currency will stoke inflation and squelch Brazil’s recovery.

B2W Cia Digital led retailers lower today. MRV Engenharia & Participacoes SA fell the most among homebuilders as Brazilian swap rates, a gauge of expectations for central bank interest-rate moves, rose. Oil producer OGX Petroleo & Gas Participacoes SA extended its quarterly drop to 66 percent.

The Ibovespa fell 0.3 percent to 47,457.13 at the close in Sao Paulo. The gauge fell 16 percent this quarter, the most among the world’s 20 biggest benchmarks tracked by Bloomberg.

Brazilian stocks have tumbled as raw-material exporters sank with commodities amid concern the Federal Reserve will scale back U.S. monetary stimulus and as the biggest street demonstrations in two decades spurred by an increase in Sao Paulo bus fares prompted local governments to postpone or cancel utility-rate and toll-road increases.

“The protests makes things more complicated for the economy,” Marcio Cardoso, a partner at brokerage Titulo Corretora de Valores SA, said in a phone interview. “At the very least, it erodes the people’s confidence, so we might see consumption falling. We also have to keep an eye on how the government will react.”

Bear Market

The real depreciated 1.5 percent to 2.2317 per dollar, extending the quarterly decline to 9.4 percent, the most among 24 major emerging markets, on concern government attempts to placate street protesters will widen Brazil’s budget deficit. The Ibovespa slumped into a bear market on June 11 after falling more than 20 percent from this year’s peak on Jan. 3.

Consumer prices climbed 6.67 percent on an annual basis through mid-June, above the 6.50 percent upper level of the central bank’s target range. Above-target inflation prompted policy makers to boost the benchmark lending rate by 0.75 percentage point this year to 8 percent after lowering it by 5.25 percentage points in cuts that began in August 2011.

“There are too many problems with Brazil’s economic policies, which is leading to higher inflation, weaker currency, slower growth,” Rogerio Freitas, a partner at hedge fund Teorica Investimentos, said by phone from Rio de Janeiro. “Any problem you can imagine, Brazil’s got it. Until there’s a sign that something is being done to tackle these issues, Brazilian assets -- equities, currency, everything -- will keep performing poorly.”

Rate Outlook

Brazil will raise the target rate to 9 percent this year, according to the most recent central bank survey of about 100 analysts, even as the economy will probably grow below the average estimated for Latin America. Gross domestic product will expand 2.5 percent this year, below a 2.92 percent regional forecast, according to economists surveyed by Bloomberg.

B2W dropped 7.7 percent to 6.55 reais. OGX fell 6 percent to 79 centavos. MRV sank 7.1 percent to 6.46 reais.

Pulp producer Fibria Celulose SA jumped 4.3 percent to 24.75 reais as exporters gained amid speculation that a weaker real will boost revenue for companies selling outside Brazil. Beef producer JBS SA, whose sales to the U.S. accounted for 74 percent of its 2012 revenues, rose 4.5 percent to 6.47 reais.

The Ibovespa trades at 12 times analysts’ earnings estimates for the next four quarters, compared with 10.2 for the MSCI Emerging Markets Index of 21 developing nations’ equities.

Trading volume for stocks in Sao Paulo was 9.07 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 7.93 billion reais this year through June 25, according data from the exchange.

Before it's here, it's on the Bloomberg Terminal.