Brazil Stocks Extend Best 2016 Rally as Vale Follows Commodities

  • Raw-material producers rise the most among 10 industry groups
  • Lenders Itau and Bradesco fall after last week's advance

The Ibovespa gained for a sixth session, extending the best performance this year among major equity indexes, as raw-material producers including Vale SA rallied on higher commodity prices.

The MSCI Brazil/Materials Index rose the most among 10 industry groups, with iron-ore producer Vale and steelmaker Cia. Siderurgica Nacional SA pacing the gains. Bradespar SA, which is part of Vale’s controlling group, rose to the highest since Nov. Planemaker Embraer SA climbed as a drop in the real boosted the outlook for sales outside Brazil.

Stocks in the South American nation have rallied on the back of commodity gains and amid speculation that support will grow to impeach President Dilma Rousseff, which was rekindled after her predecessor and mentor Luiz Inacio Lula da Silva was detained for three hours on Friday in a sweeping corruption probe.

"We’ve been seeing a strong recovery for metals prices in the past days, and that’s making investors more optimistic about raw-materials producers,” said Pedro Paulo Silveira, chief economist at brokerage Nova Futura. “Those companies are supporting the Ibovespa’s recent advance."

The Ibovespa rose 0.3 percent to 49,246.10 at the close of trading in Sao Paulo. Vale and CSN, as Cia. Siderurgica is known, each climbed more than 8 percent. The gauge earlier dropped as much as 0.7 percent amid concern that the recent rally may have been overdone amid a bleak economic outlook, with lenders Itau Unibanco Holding SA and Banco Bradesco SA trading lower. Brazil’s benchmark equity index on March 4 traded at 12.6 estimated earnings, close to the most expensive level in seven months.

While a shift in economic policies could help to restore confidence, the political scenario is still too uncertain to support further optimism, Silveira said.

"An eventual impeachment may take a long time,” he said. "While politics will continue to be the main driver for the markets in the coming weeks, we don’t have any idea of how all that will develop."

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