Brazil's Stocks Decline Second Day as Recession Saps Earnings

  • Lender Itau drops as survey shows worsened economic outlook
  • State-controlled oil producer Petrobras follows crude lower

Brazil’s benchmark stock index posted its biggest two-day decline in over three weeks as economists’ estimates for a deeper recession in Latin America’s largest economy dimmed the outlook for corporate profits.

Itau Unibanco Holding SA, the region’s biggest bank by market value, contributed the most to the Ibovespa’s decline Monday after a weekly survey by the central bank showed analysts cut their forecasts for gross domestic product this year and next. State controlled oil producer Petroleo Brasileiro SA, known as Petrobras, slid with oil.

Economists covering Brazil now expect the recession to be deeper and more prolonged than they did a week earlier. Brazil’s benchmark equity index has lost 20 percent from this year’s peak in May as President Dilma Rousseff struggles to pass austerity measures aimed at averting further credit-rating downgrades and shoring up the budget. Members of the Ibovespa that have already reported third-quarter earnings missed analysts’ estimates by a cumulative 23 percent, according to data compiled by Bloomberg.

“The scenario is pretty negative for Brazilian companies,” Pedro Paulo Silveira, the chief economist at brokerage TOV Corretora, said from Sao Paulo. “Investors are very cautious because there are a lot of uncertainties regarding the political and economic scenario.”

The Ibovespa fell 1.5 percent to 46,194.92 at the close of trading in Sao Paulo, extending a two-day drop to 3.9 percent. Itau lost 2.6 percent. Petrobras slipped 2.3 percent. For-profit college manager Gaec Educacao SA sank to a one-month low after disappointing earnings.

Brazilian stocks also retreated after Chinese overseas shipments declined 6.9 percent in October in dollar terms, the customs administration said, a bigger drop than estimated by all 31 economists in a Bloomberg survey. China is Brazil’s top trading partner.

Homebuilder MRV Engenharia e Participacoes SA rallied as Banco Bradesco SA recommended buying the stock. MRV is still the best pick in the sector as it’s well-positioned to weather the economic crisis and even take advantage of falling land prices and construction costs, Luiz Mauricio Garcia, an analyst at Bradesco, wrote in a note to clients.

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