Brazil Stocks Slump as Real Rally Sends Embraer Shares Tumbling

  • Equities also fall as Temer's adviser signals only gradual fix
  • Lender Itau contributes the most to Ibovespa's decline

Is It Time to Bet on Brazil's Turnaround?

Brazilian stocks trimmed the longest stretch of monthly gains since 2014 as a rally in the real dimmed the outlook for exporters.

The Ibovespa erased an earlier advance as the real strengthened the most among major currencies, adding to speculation that companies that sell their goods overseas will see slowing revenue. Planemaker Embraer SA, which gets more than 90 percent of its sales from abroad, sank to the lowest level in almost two years. Lender Itau Unibanco Holding SA contributed the most to the equity gauge’s slide.

Ibovespa Companies in April

Traders have piled into Brazilian shares for a third straight month on speculation that President Dilma Rousseff will be ousted, ushering in an administration better able to pull Latin America’s largest economy from a recession. Stocks trimmed part of the gains after the Ibovespa touched the highest valuation in a year on concern that reviving growth won’t be an easy task. Vice President Michel Temer’s top adviser has said that a new government would only achieve gradual improvements of fiscal accounts, a key issue that contributed to the loss of the nation’s investment-grade credit rating.

“The impeachment has mostly been priced in, and additional gains for stocks will only come when results start to improve,” said Hersz Ferman, an analyst at brokerage Elite Corretora, in Rio de Janeiro. “In the meantime, we should see more market volatility, with exporters vulnerable to the real appreciation.”

The Ibovespa retreated 0.7 percent to 53,910.51 in Sao Paulo. The real climbed 4.5 percent in April, the biggest gain among the world’s 16 most-traded currencies after the Japanese yen. Embraer lost 3.9 percent and Itau fell 1.5 percent.

Even after Friday’s drop, the Ibovespa traded at 13.7 times estimated earnings, near the most expensive level since May 2015. Brazil’s benchmark equity index is still up 7.7 percent in April as an advance in commodity prices boosted the weighting of raw-materials producers on the index to 24.3 percent, the highest in one year. Iron-ore miner Vale SA climbed 1.2 percent Friday, extending this month’s gains to 38 percent.

"Commodity producers are becoming more relevant to the Ibovespa again as raw-material prices recover," Alvaro Bandeira, the chief economist at brokerage Modalmais, said from Rio de Janeiro. "That trend should continue."

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