Ibovespa Declines on Brazil Contraction Forecast, Chinese Slump

  • Benchmark equity gauge slumps for fourth straight session
  • Largest Latin America economy forecast to shrink 2.95% in 2016

What's Ahead for Brazil in 2016?

Brazilian stocks fell as analysts turned more pessimistic on Latin America’s largest economy amid weaker-than-expected manufacturing data in China.

The benchmark Ibovespa equity gauge slumped for the fourth straight session, reaching the lowest since 2009, after analysts in a central bank survey forecast a deeper recession this year than previously expected, as economic activity and confidence sink amid a political crisis. Brazil’s economy will shrink 2.95 percent this year, according to the weekly survey of about 100 economists, compared with a prior estimate of a 2.81 percent contraction. It was the 13th straight week that analysts lowered their 2016 outlook.

Investors are also turning more pessimistic on Brazil’s economy amid signs of a slump in China, its biggest trade partner. China stopped trading of stocks, futures and options after a 7 percent tumble in the CSI 300 Index caused the nation’s new circuit breakers to kick in. The Caixin factory index for China was 48.2 in December, showing that manufacturing weakened for a fifth month, the longest such streak since 2009.

The manufacturing "contraction in China draws a daunting scenario for Brazilian exporters, while the complicated domestic scenario keeps weighing on assets across the board," said Vitor Suzaki, an analyst at brokerage Lerosa Investimentos in Sao Paulo. "Everywhere you look, there’s reason for concern and there is not much hope of an improvement any time soon."

The Ibovespa lost 2 percent to 42,501.70 at 10:40 a.m. in Sao Paulo as all but three of the gauge’s 63 stocks dropped. Usinas Siderurgicas de Minas Gerais SA tumbled 5.8 percent, the biggest drop on the index. Itau Unibanco Holding SA’s 2 percent slump contributed the most to the Ibovespa’s slump.

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