Brazilian Stocks Post Longest Slump This Month as Real Advances

  • Ibovespa volatility near highest level since February
  • Currency leads gains in emerging markets, erases decline

Brazil’s benchmark stock posted its longest slump this month as concern rose that political turmoil will derail the recovery of Latin America’s largest economy. The real advanced.

The drop was accompanied by volatility close to its highest level since February amid speculation that Finance Minister Joaquim Levy could leave his post. Petroleo Brasileiro SA, the oil producer at the center of the nation’s largest corruption scandal, declined as crude prices tumbled.

Brazilian stocks have slumped 19 percent from this year’s peak in May, sparking a surge in volatility, as President Dilma Rousseff struggles to win support for measures intended to shore up the budget and avoid another credit rating downgrade amid calls for her impeachment. Concern among investors that Levy may leave the government increased after Valor Economico newspaper reported that Rousseff’s aides are promoting former cabinet chief Antonio Palocci Filho as a candidate to replace him.

"Brazil is struggling to tighten the belt," said Ipek Ozkardeskaya, an analyst at London Capital Group. "Friction within Rousseff’s team could be the last nail in the coffin and further corrode the bridge toward a healthier budget."

The Ibovespa dropped 0.4 percent to 47,042.95 at the close of trading in Sao Paulo, falling for a third day. The gauge traded at 10.7 times estimated earnings, or 20 percent below the average of the MSCI Emerging Markets Latin America Index. The real rose 0.5 percent to 3.8886 per dollar, the most among 24 developing-nation currencies, after slumping as much as 0.6 percent.

The real’s three-month implied volatility, a measure of the severity of price swings, was at 22, the highest among 16 major currencies tracked by Bloomberg. The average estimate of analysts surveyed by Bloomberg is for the currency to weaken to 4.05 per dollar by the middle of next year

Swap rates on the contract maturing in January 2017, a gauge of expectations on Brazil’s interest-rate moves, declined 0.1 percentage point to 15.22 percent.

Petrobras, as Petroleo Brasileiro is known, extended a three-day slide to 5.2 percent. The company has said that its pre-salt oil reserves are viable with oil prices at $48 per barrel. Crude dropped to a two-month low of $43.20 a barrel in New York before government data that’s forecast to show U.S. crude stockpiles increased.

Phone carriers Tim Participacoes SA and Oi were the worst performers on the Ibovespa. Marco Patuano, Chief Executive Officer of Telecom Italia SpA, which is Tim’s controlling shareholder, said the Brazilian mobile company is not in talks for a merger with Oi. Both stocks rallied Monday after Oi said it was offered a $4 billion capital injection from a Russian billionaire under the condition it merge operations with rival Tim.

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