Ibovespa Trims Longest Weekly Rally in Two Years Amid Turmoil

  • Bradesco, Ambev contribute most to the index's decline
  • Brazil's stocks gain for fifth week amid impeachment bets

Will Brazil's Dilma Rousseff Be Impeached?

Brazil’s stocks dropped amid speculation that the longest weekly rally since April 2014 outpaced prospects for the deepest recession in a century amid uncertainties about a change in government in Latin America’s largest economy.

Lenders Banco Bradesco SA and brewer Ambev SA contributed the most to the Ibovespa’s decline. Banco Santander Brasil SA fell the most on the Ibovespa. Steelmaker Usinas Siderurgicas de Minas Gerais SA was unchanged even after negotiating a four-month reprieve on debt payments that gives joint controlling shareholder Nippon Steel & Sumitomo Metal Corp. the upper hand in a battle over how to keep the company solvent.

Brazilian assets slumped, after a rally that sent the Ibovespa’s valuation above its five-year average, on speculation that an eventual change in the administration will be a lengthy process at a time when the economic recession deepens further. Traders have pushed up the value of shares over the past five weeks on bets that President Dilma Rousseff would be ousted amid optimism that a new government could halt a political quagmire that’s prevented Congress from focusing on kick-starting the economy.

The stock benchmark dropped 0.2 percent to 50,814.66 at the close of trading in Sao Paulo, reducing this week’s gain to 2.4 percent. The Ibovespa also posted its best eight-week run since 1999, and its 60-day implied volatility has risen by a third since the end of January. That’s a signal that traders are worried the index would fall amid the country’s continuing political turmoil, because volatility usually goes up when prices go down.

“The market has mostly reflected the political scenario,” said William Goncalves, an analyst at brokerage Geral Investmentos in Porto Alegre. “We should expect a lot of volatility until the situation gets solved.”

Before it's here, it's on the Bloomberg Terminal.