Ibovespa Enters Bull Market as Petrobras Rallies After Results

The Ibovespa entered a bull market on bets the spending cuts proposed by President Dilma Rousseff and the release of delayed results by Petroleo Brasileiro SA will be enough for Brazil to avoid a credit rating downgrade.

The stock benchmark rose 1.6 percent to 56,594.22 at the close in Sao Paulo, extending a rally from a Jan. 30 bear-market low to 21 percent. Petrobras, as the oil producer is known, has surged 62 percent, leading gains in the gauge during that span.

The Ibovespa is the best performer this year among major stock indexes in the Americas. Rousseff pledged in an interview last month to do whatever it takes to meet fiscal goals, with Finance Minister Joaquim Levy leading an effort to unwind tax breaks and boost revenue. Petrobras reported results Wednesday after a five-month internal debate that shut off its access to bond markets and destabilized the country’s markets.

“The release of Petrobras’s results removed a big overhang from stock trading,” Ari Santos, equity manager at brokerage firm H.Commcor, said by phone from Sao Paulo. “The fear of a downgrade of Brazil and Petrobras has eased. That’s paving the way for investors to reassess Brazilian assets.”

Petrobras reported writedowns of 50.8 billion reais ($16.9 billion) that drove a 2014 net loss of 21.6 billion reais and wiped out dividend payments. By disclosing the charge in its first audited results since August, Petrobras avoided an acceleration of its debt payments and opened the way for renewed access to financial markets.

Erasing Losses

The oil producer preferred shares, the most widely traded, jumped 2.6 percent Friday to 13.26 reais, and briefly erased losses accumulated since Nov. 13, the day before police arrested more than 20 people during a probe into whether its executives demanded bribes in exchange for contracts.

Brazil joined the other so-called BRIC countries of China, India and Russia in entering a bull market, generally defined as a 20 percent advance from a bear-market low. The Ibovespa had entered a bear market following Rousseff’s re-election in October amid speculation a widening budget deficit, faster inflation and sluggish economic growth would jeopardize the country’s investment-grade status.

“Markets are giving Brazil a vote of confidence,” Otavio Vieira, who helps manage 250 million reais ($82 million) as a partner at hedge fund Fides Asset Management, said from Rio de Janeiro. “Levy has strong support from Dilma to make a fiscal adjustment, which is positive.”

Investment Grade

In March, Brazil had its investment-grade status affirmed with a stable outlook by Standard & Poor’s, which last year gave the country its first sovereign downgrade in more than a decade. S&P rates the nation at BBB-, the lowest investment grade. Moody’s Investors Service, which rates Brazil one level higher, put the nation on negative outlook in September.

Steelmaker Usinas Siderurgicas de Minas Gerais SA has gained 79 percent since the Jan. 30 low for the Ibovespa, and pulp maker Fibria Celulose SA has jumped 34 percent as a drop in the real boosted the outlook for sales outside Brazil. The country’s currency fell to a 12-year low on March 19 as the dollar strengthened amid speculation that policy makers in the U.S. will soon start to raise interest rates.

All 10 groups in the MSCI Brazil Index advanced today, led by raw-material companies. The Bloomberg Base Metals Three-Month Price Commodity Index gained 1.8 percent as iron ore rallied 5.5 percent to $57.81 a ton.

Vale SA, the world’s largest iron-ore producer, surged 6.7 percent to 18.71 reais, the highest level since Feb. 25. The stock extended a rally this week to 25 percent.

“The price of metals, especially iron ore, has been rising strongly in the past few days and giving a lot of support to producers,” Hersz Ferman, an economist at brokerage firm Elite Corretora, said in a phone interview from Rio de Janeiro. “That’s favoring Brazilian miners and steelmakers. They have room to rise more because of this.”

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