Brazil Real, Stocks Shrug Off S&P Cut to Rally With Commodities

  • Raw materials jump as China was said to boost economy support
  • Brazil's credit rating cut further into junk territory by S&P

Brazil’s real and stocks shrugged off a credit-rating downgrade by Standard & Poor’s as a rally in commodities fueled increased appetite for emerging-market assets.

The Ibovespa climbed to a six-week high, while the real posted the second-biggest advance among major currencies as raw materials surged after China was said to accelerate measures to prevent a deeper slowdown. Brazilian assets briefly trimmed gains after the nation’s debt rating was cut to two levels below investment grade by S&P, which cited fiscal and political challenges for Latin America’s largest economy.

“We saw some market reaction right after the announcement, but it was basically muted after people realized nothing changes in the end, since we are already junk,” said Solange Srour, the chief economist at investment-management company ARX Investimentos in Rio de Janeiro. “This is a good day for emerging markets as a whole, and we see the real and local equities following that.”

Stocks and currencies of developing nations climbed with commodities after China, Brazil’s top trading partner, was said to step up support for the economy by boosting spending and considering new measures to increase bank lending. The worst economic performance since the global financial crisis for the Asian nation has added to Brazil’s own struggles, including the deepest recession in a century, a widening corruption probe and prospects for further credit-rating downgrades.

The Ibovespa climbed 1.7 percent to 41,630.82 at the close of trading in Sao Paulo, led by oil company Petroleo Brasileiro SA. Lender Itau Unibanco Holding SA extended a two-day rally. The real rose 1.9 percent to 3.9902 per dollar. The cost of insuring Brazilian bonds in the credit-default swap market for five years declined to the lowest level since Feb. 5.

"Appetite for risk is increasing all over the world and Brazil is benefiting from this movement today," said Raphael Figueredo, an analyst at brokerage Clear Corretora in Sao Paulo. "There was some exaggeration on the declines in the beginning of this year, so stocks that are considered cheap are attracting buyers."

Even after Wednesday’s rally, the Ibovespa’s price-to-book ratio was 0.98, compared with 1.9 for global stocks. Readings below 1 indicate investors believe the companies on the index are worth less than their net assets.

Brazil is headed to a third consecutive month of dollar outflows, according to data released by the Central Bank. The country had a net outflow of $423 million in the two weeks ending on Feb. 12, the central bank report said. That adds to outflows of $1 billion in January and $334 million in December.

Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest rates, dropped 0.04 percentage point to to 14.24 percent.

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