Brazil Stocks Rise Most in Americas as Utilities Surge on Rates

  • Regulator signals electricity supplies returning to normal
  • State-controlled oil producer Petrobras follows crude higher

Brazil’s benchmark stock gauge rallied as power utilities jumped after a regulator’s decision to cut rate surcharges signaled that hydroelectric supply is rebounding following a drought that sapped reservoir levels.

Cia. Energetica de Minas Gerais surged 10 percent, leading gains in power companies. Brewer Ambev SA was the top contributor to the Ibovespa’s advance Wednesday after the lowest valuations in about four years attracted buyers. State-controlled oil company Petroleo Brasileiro SA climbed 8.8 percent, following gains in crude.

The rebound in power utilities provided somewhat of a respite for an industry that has lost about 24 billion reais ($5.9 billion) in market value since 2013, when the government forced it to cut prices in exchange for generating-concession renewals. Their situation got worse between 2014 and 2015, as Brazil faced its worst drought in eight decades. Wednesday’s rally pared the Ibovespa’s losses this year to 11 percent.

"Power utilities were famous, in the past, for being defensive stocks as they paid good dividends," Rafael Ohmachi, an analyst at the brokerage Guide Investimentos, said from Sao Paulo. "That changed after all the trouble they wen through, but the surcharge cut means that the worst is almost over. Not only the generation conditions seem to have improved but, with cheaper rates, we expect the utilities to sell more."

The power regulator, known as Aneel, announced Tuesday after the market closed that a surcharge applied to rates when conditions for electricity generation are unfavorable will be reduced.

The Ibovespa rose 2.3 percent to 38,376.37 in Sao Paulo, posting the biggest gain since Dec. 9. Cemig, as Cia. Energetica is known, rallied the most since 2008. State-controlled Centrais Eletricas Brasileiras SA, or Eletrobras, added 9 percent in its biggest rally since May. The MSCI Brazil/Utilities Index rose 4.5 percent.

Ambev climbed 5.8 percent, after its valuation rebounded from the lowest in four years.

The Ibovespa is still among the world’s 10-worst performing indexes in dollar terms this year as concern regarding China’s growth hurt the country’s raw-materials exporters and companies linked to domestic demand suffered amid forecasts for the worst recession since 1901.

"Even considering the risks, it seems that there was an exaggeration in the recent decline," Pablo Spyer, Pablo Spyer, the operational director at brokerage Mirae Asset Wealth Management, said from Sao Paulo. His firm oversees 4.5 billion reais. "When that happens, it’s natural that investors start looking for good opportunities, companies that may weather the crisis better."

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