Brazilian Stocks Decline With Itau as Economic Outlook Worsens

  • Economists in Central Bank survey see 2016 GDP shrinking 2.67%
  • Political crisis has paralyzed fiscal-adjustment plans

Brazil’s stocks extended a three-day drop as a central bank survey showed the economic outlook for 2016 is worsening, dimming prospects for companies that depend on domestic demand.

Homebuilder Cyrela Brazil Realty SA and education company Estacio Participacoes SA were the worst performers on a gauge of consumer-discretionary stocks. Lender Itau Unibanco Holding SA contributed the most to the Ibovespa’s decline. Analysts in the central bank’s weekly survey expect Brazil’s economy to contract 2.67 percent in 2016, compared with a previous forecast for a 2.31 percent drop.

Forecasts for Latin America’s biggest economy have worsened week after week as a corruption scandal fuels political paralysis in Brasilia, hindering efforts to trim a budget deficit and lay the groundwork for an economic rebound. Moody’s Investors Service last week said it may cut the country’s credit rating to junk, following a similar move by Standard and Poor’s in September, because of the nation’s inability to exit the quagmire.

"The political turmoil explains all of our problems right now, and it’s very hard to see any sign of improvement," Raphael Figueredo, an analyst at brokerage Clear Corretora, said from Sao Paulo. "All the uncertainties regarding prospects for next year prompts investors to get rid of Brazilian assets."

The Ibovespa retreated 1.1 percent to 44,747.31 at the close of trading in Sao Paulo, with three stocks falling for every one that gained. Brazil’s benchmark equity gauge is trading at 10.5 times estimated earnings, compared to 15.4 times for the MSCI Global Index.

Estacio lost 4.2 percent. Clothing retailer Cia. Hering slid 2.8 percent and Itau 2.4 percent. State-controlled oil producer Petroleo Brasileiro SA slumped a third day as crude fell below $35 per barrel for the first time since 2009. The decline of the commodity makes the outlook for the company’s offshore investments less attractive. Real estate brokerage Brasil Brokers Participacoes SA rallied 10 percent, the biggest one-day surge in six years.

The Ibovespa is heading toward its third straight year of losses as Brazil’s economy plunges into its longest recession since the 1930s while President Dilma Rousseff is fighting an impeachment request.

Material producers were among the few stocks to rise Monday as the real depreciated, improving prospects for their sales in the international market. Miner Vale SA climbed 2.9 percent, helped by data that indicated that the economy of China, it’s biggest export market, is stabilizing. Pulp producer Fibria Celulose SA extended this year’s rally to 55 percent.

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