Brazil Stocks Climb With Commodities, Politics as Foreigners Buy

  • Petrobras and Vale contribute most to Ibovespa's advance
  • Foreign investors flock to Brazil assets on impeachment wagers

What's Driving Brazil's Rally? It's All About Commodities

The Ibovespa rose to a 10-month high as an advance in commodity prices boosted crude producer Petroleo Brasileiro SA and miner Vale SA, while bets on a change in government supported shares from companies that depend on domestic demand.

Petrobras, as the oil company is known, and Vale contributed the most to the benchmark equity index’s advance as crude rose for the first time in five days and the Standard & Poor’s GSCI raw-materials index climbed to the highest level since November. Commodity producers account for about 20 percent of the Ibovespa’s weighting.

After rallying 24 percent in 2016 on speculation President Dilma Rousseff was on her way to being impeached, the Ibovespa is trading at its highest valuation on a price-to-estimated-earnings basis since May. Foreign investors have piled into the country’s stocks this month on wagers that a new government would be better positioned to pull Brazil out of its worst recession in a century, and the Senate is preparing to debate impeachment after the lower house voted to oust her Sunday.

"In Brazil, the inflows now are related to the expectation of a change in economic policies, but we’ve got to look at it considering the very positive context for all emerging countries," said Gabriela Santos, global market strategist at JPMorgan Chase & Co. in New York.

The Ibovespa climbed 1.5 percent to 53,710.05 at the close of trading in Sao Paulo as three-quarters of its 61 stocks gained. Petrobras added 4.1 percent and Vale advanced 8.7 percent. A gauge of material producers was the best performer among 10 industry groups. 

“The mood is more optimistic on the international markets today with the advance in oil prices, and that’s helping to lift Brazilian stocks too," said Vitor Suzaki, an analyst at brokerage Lerosa Investimentos in Sao Paulo. "Prospects for a new government also encourage investors."

Brazil’s benchmark stock index is trading at 15.3 times estimated earnings, 22 percent above the level for the MSCI Emerging Markets Index, the highest gap since 2013.

Foreign investors are responsible for most of the stock buying this month, according to data compiled by the exchange. Foreigners acquired 856 million reais ($242.4 million) in equities through April 15, while local individuals have sold 35 million reais.

Steelmaker Cia. Siderurgica Nacional SA, known as CSN, Vale and its shareholder Bradespar SA have been the biggest gainers on Ibovespa in April.

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