Brazilian Stocks Decline as Earnings Disappoint in Recession

  • Credit-card processor Cielo and college operator Estacio slump
  • U.S. jobs data exacerbates losses on outlook for higher rates

Brazilian stocks declined, trimming a weekly gain, as disappointing corporate earnings highlighted the deepening recession in Latin America’s biggest economy.

Miner Vale SA tumbled to a two-month low after dams at an iron-ore project it co-owns with BHP Billiton Ltd. burst on Thursday, flooding a valley and burying dozens of homes in mudslides. Credit-card processor Cielo SA and for-profit college manager Estacio Participacoes SA declined after third-quarter results trailed analysts’ estimates.

Among 35 Brazilian companies that have already reported quarterly results, 46 percent of them posted earnings that were a negative surprise for analysts, data compiled by Bloomberg show. It’s a result of a recession that’s forecast to be the longest since the 1930s. The earnings gloom adds to a negative mood that’s prevailed for most of the year in Brazil as President Dilma Rousseff struggles to pass austerity measures aimed at averting credit-rating downgrades and shoring up the budget.

"That’s a summary of the mess we’re living in," Jason Vieira, the chief economist at Infinity Asset Management, said from Sao Paulo. "But the worst part isn’t the realization that things are bad now. It’s that nothing has been done to improve our prospects. We’re stuck."

Brazilian equities extended losses after a better-than-forecast U.S. jobs report fueled speculation that the Federal Reserve will raise rates next month, a move that could dim the appeal of higher yielding emerging-market assets. Foreign investors account for 53 percent of equity trading in the Latin American country.

The Ibovespa lost 2.4 percent to 46,918.52 at the close of trading in Sao Paulo as 52 of its 63 stocks dropped, leaving it up 2.3 percent for the week. Vale’s preferred shares dropped 5.7 percent. Cielo declined 1.3 percent. Estacio fell the most in a month, losing 6.6 percent.

"It’s time for investors to get more cautious," said Alvaro Bandeira, an economist at Banco Modal in Rio de Janeiro. "Both the domestic and the external scenarios are very discouraging."

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