Brazil Stocks Join Global Rally as Vale Surges on China Outlook

  • Chinese economic growth decelerated, fueling stimulus bets
  • Clothing retailer Hering slumps as sales fall amid recession

Brazil’s stocks rebounded from an almost seven-year low, joining a global rally, as Vale SA led gains in commodities producers on speculation that China will take measures to boost its economy after posting the weakest growth since 1990.

Iron-ore producer Vale, whose biggest export market is China, led gains on an MSCI gauge of raw-materials exporters. Steelmaker Cia. Siderurgica Nacional capped its biggest two-day rally this month. Energy and commodity companies account for about 20 percent of the Ibovespa’s weighting.

Brazil’s benchmark gauge rose for just the third time this year as the speculation regarding China overshadowed estimates that the domestic economy is in the midst of its worst contraction in more than a century. The Asian nation is the biggest market for Brazil’s exports, and the turmoil in the Chinese currency and stock markets has hurt commodity producers, depressing Brazilian share prices.

"Brazil’s benefiting from the optimism regarding China," Vitor Suzaki, an analyst at brokerage Lerosa Investimentos, said from Sao Paulo. "The deceleration was just enough to convince the government to act and to encourage bets that it may work."

China said gross domestic product rose 6.8 percent in the fourth quarter from a year earlier. Full-year growth of 6.9 percent, the least since 1990, was in line with the government’s target of about 7 percent.

The Ibovespa added 0.3 percent to 38,057.02 at the close of trading in Sao Paulo as 31 of its 61 stocks gained. Vale climbed 1.3 percent to 7.04 reais, and CSN, as the steelmaker is known, rose 2.5 percent to 3.28 reais.

While the international scenario brought some relief, domestic prospects remained negative, weighing over cosmetics maker Natura Cosmeticos SA and power utilities including Energias do Brasil SA.

The International Monetary Fund cut its forecast for Brazil’s gross domestic product by 2.5 percentage points to a contraction of 3.5 percent in 2016 as a political gridlock push the country deeper into recession.

Natura dropped 2.9 percent to 22 reais, and Energias do Brasil declined 2 percent to 11.03 reais.

Cia. Hering, a century-old clothing manufacturer and retailer, fell the most in eight months after reporting sales declined 0.7 percent in the fourth-quarter of 2015 from 2014 to 607.9 million reais ($150.3 million).

With the revenue drop, Hering’s margin on earnings before interest, taxes, depreciation and amortization may fall to about 19 percent in 2015 from 23.6 percent one year earlier, according to the equity research firm Eleven Financial, who cut its recommendation on the stock to the equivalent of hold from buy following the preliminary results report.

"Hering is already suffering withe the decline in demand," Marcus Tsukuda, an analyst at Eleven, said from Sao Paulo. "Besides that, it can take a bit hit from exchange rates as it imports part of the materials it uses and some finished goods. The company could cushion part of the losses by replacing imported products for local items and seeking opportunities to export to other Latin American countries, but the management has been very conservative in their strategy."

Alexandre Tombini, Brazil’s central bank President, said that the monetary authorities will take into account the IMF’s gloomy estimate when deciding on interest rates as they meet this week. Traders pared bets on increases to the country’s benchmark interest rate.

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