Ibovespa Sinks as Currency Drop Fuels Brazil Inflation ConcernNey Hayashi and Julia Leite
The Ibovespa declined for a fourth day as the Brazilian real sank to the lowest since 2009, fueling concern that inflation will keep accelerating and further erode the expansion in Latin America’s biggest economy.
OGX Petroleo e Gas Participacoes SA, billionaire Eike Batista’s oil company, extended its five-day decline to 58 percent and contributed most to the stock gauge’s drop. Airline Gol Linhas Aereas Inteligentes SA plunged to a record low. MRV Engenharia e Participacoes SA led declines among homebuilders. State-controlled Petroleo Brasileiro SA rebounded from its lowest closing price since 2005.
The Ibovespa dropped 0.4 percent to 45,044.03 at the close of trading in Sao Paulo. Forty-four stocks fell on the measure while 21 rose. The real dropped 0.6 percent to 2.2688 per dollar, the weakest closing level since April 2009, stoking concern that its decline will fuel inflation and curb the economic recovery.
“We’ve had concern about slowing growth and rising inflation for a while, but things seem to be getting worse everyday,” Fernando Goes, an analyst at Sao Paulo-based brokerage Clear Corretora, said in a phone interview. “I think the currency is just starting to depreciate, and inflation will be affected by that.”
Consumer prices soared 6.67 percent in the 12 months through mid-June, above the 6.50 percent upper limit of the central bank’s target range. Policy makers have boosted the benchmark lending rate 0.75 percentage point this year from a record-low 7.25 percent in a bid to tame inflation.
OGX sank 13 percent to 39 centavos. Gol lost 7.4 percent to 6.25 reais. MRV slumped 5.3 percent to 6.11 reais. Brookfield Incorporacoes SA fell 4.3 percent to 1.34 reais as Fitch Ratings cut its credit ranking by one level to B+, citing cost overruns and contract cancellations that have eroded profit. The BM&FBovespa Real Estate Index dropped 1.2 percent.
Petrobras, as Petroleo Brasileiro is also known, advanced 3.3 percent to 15.90 reais even after saying that crude and gas output dropped in May. The Standard & Poor’s GSCI Index of commodities climbed 1.3 percent.
Brazil’s main stock index has tumbled 26 percent this year, the worst performer among 94 equity benchmarks tracked by Bloomberg, amid concern that accelerating inflation will spur policy makers to take further steps to cool the economy and that the government’s interventionist policies will hurt profits in industries including utilities and energy.
The Ibovespa trades at 10.8 times analysts’ earnings estimates for the next four quarters, compared with 9.7 for the MSCI Emerging Markets Index of 21 developing nations’ equities. Trading volume for stocks in Sao Paulo was 8.07 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 7.99 billion reais this year through July 1, according to data compiled by the exchange.