Ibovespa Falls Most in World as China Economic Outlook Saps Vale

The Ibovespa sank the most among the world’s equity benchmarks as commodity exporters including iron-ore producer Vale SA tumbled on signs that growth is slowing in China, Brazil’s biggest trading partner.

Bradespar SA, the Banco Bradesco SA unit that is part of the group that controls Vale, was the worst performer on the MSCI Brazil/Materials Index. Embraer SA fell as Banco Santander SA reduced its recommendation on the plane builder to the equivalent of sell. Retailer Cia. Hering declined as traders raised bets on higher borrowing costs.

The Ibovespa dropped 2.5 percent to 49,321.68 at the close of trading in Sao Paulo, the lowest since Aug. 8. The real was little changed at 2.3961 at 5:19 p.m. local time. The Bloomberg Base Metals 3-Month Price Commodity Index fell 1.3 percent after China’s producer price index posted its 22nd straight drop.

“If things get worse in China, it could hurt the Ibovespa badly,” Gustavo Mendonca, an economist at Saga Capital, said in a phone interview from Rio de Janeiro. “Even considering that Brazilian equities have already fallen quite a bit in the past year, the stock market won’t be immune to a worsening in the outlook for China.”

Brazil’s benchmark equity gauge fell 27 percent in dollar terms in 2013, the worst performance among the 20 biggest indexes tracked by Bloomberg, as policy makers boosted borrowing costs to curb inflation that exceeded the government’s target for a third consecutive year.

Vale declined 3.7 percent to 29.93 reais today. Bradespar lost 4.7 percent to 22.20 reais.

Hering, Embraer

Hering sank 3.6 percent to 27.27 reais. Brazilian swap rates climbed on most contracts today as a weaker real added to speculation that the central bank will sustain the pace of increases in borrowing costs to stem inflation.

Rising prices and sluggish economic growth will probably weigh on Brazilian stocks through 2014, Banco BTG Pactual SA analysts wrote today in a research note.

“From almost any angle, the economic environment looks set to be extremely challenging in 2014,” analysts including Carlos Sequeira wrote.

Consumer prices as measured by the IPCA index will rise 5.97 percent this year after increasing 5.74 percent in 2013, according to the median estimate in a central bank survey of about 100 economists published on Jan. 6. Economic growth is forecast to slow to 1.95 percent from 2.28 percent last year, the survey showed.

Embraer, ALL

Embraer lost 1.6 percent to 19.10 reais. The stock trades at 17 times its 2014 earnings estimated by Santander analysts Pedro Balcao Reis and Bruno Amorim, compared with 11.5 in 2012. Current valuation is “difficult to justify,” the analysts wrote in a research note to clients.

Railroad company ALL - America Latina Logistica SA jumped 8.8 percent to 6.80 reais after Valor Economico reported it may resume talks to merge with Cosan SA Industria e Comercio’s logistics unit. The newspaper didn’t say where it got the information. ALL said in a regulatory filing that the company “constantly evaluates” ways to settle the dispute with Cosan’s unit Rumo Logistica SA that arose after both companies failed to reach an agreement to combine their operations.

Trading volume of stocks in Sao Paulo today was 7.2 billion reais, data compiled by Bloomberg show. That compares with a daily average of 7.42 billion reais in 2013, according to data available from the exchange.

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