Ibovespa Declines a Second Day as Valuations Seen Too Expensive

The Ibovespa fell a second day on speculation the recent gains that pushed valuations to a six-month high may have been overdone given the prospects for lower growth and above-target inflation in Brazil.

Airline Gol Linhas Aereas Inteligentes SA was the worst performer on the gauge after posting its biggest weekly gain in four months in the five days ending Friday. Iron-ore producer Vale SA followed metals prices lower. Diagnosticos da America SA, the medical-testing firm known as Dasa, sank after reporting a fourth-quarter loss.

The Ibovespa retreated 0.8 percent to 51,506.07 at the close of trading in Sao Paulo. Stocks on the index traded Monday at an average 11.7 times their forecast earnings, the highest since September, according to data compiled by Bloomberg. A weekly central bank survey showed yesterday that the Brazilian economy will probably contract 0.83 percent in 2015 with inflation at 8.12 percent, above the upper limit of the government’s target.

“Stocks have been rising this year, but fundamentally nothing has changed,” Otavio Vieira, a partner at hedge fund Fides Asset Management, said by telephone from Rio de Janeiro. “People that have been buying at these levels will regret it by the end of the year.”

Gol fell 4.3 percent to 8.85 reais. Vale declined 2.4 percent to 16.90 reais as the Bloomberg Base Metals 3-Month Price Commodity Index lost 0.2 percent. Dasa lost 4 percent to 10.23 reais.

The Ibovespa earlier gained as much as 0.6 percent after Standard & Poor’s affirmed the nation’s investment-grade credit rating, reducing the likelihood of an immediate downgrade. S&P maintained Brazil at one step above junk with a stable outlook, citing President Dilma Rousseff’s changes in policies to restore credibility.

Approval Rating

While Rousseff’s administration tries to push measures through Congress that reduce spending and crimp benefits, the government’s declining approval rates makes it difficult for her to implement the plan, said Michelle Gibley, the director of international research at San Francisco-based Charles Schwab Corp., which oversees $2.4 trillion in assets.

“It’s going to be very difficult for her to implement such unpopular measures at a time when her approval ratings are so low,” Gibley said in a phone interview. “Brazilian stocks don’t look like a very good buy.”

Brazil’s equity benchmark entered a bear market Dec. 12 after falling 22 percent from last year’s high in September. Trading volume of equities in Sao Paulo was 5.5 billion reais ($1.8 billion) Tuesday, according to data compiled by Bloomberg. That compares with a daily average of 6.7 billion reais this year, according to the exchange.

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