Brazil Stocks Rise as Petrobras Rally Offsets Political Tension

  • State-controlled oil producer follows advance in crude
  • Newspaper reported prosecutor-general seeks arrest of Senators

Brazil Is Unraveling Before Our Eyes

The Ibovespa rose for the fourth time in five days as state-controlled Petroleo Brasileiro SA followed oil higher, offsetting increased political tension.

Petrobras, as the Brazilian crude producer is known, was among the biggest contributors to the benchmark equity index’s advance as Brent crude advanced to an eight-month high. The rally overshadowed concern it may be difficult to get Congressional support for measures aimed at shoring up the budget and pulling Latin America’s biggest economy out of a recession. Brazilian shares also joined gains in emerging-market assets on speculation that the Federal Reserve won’t raise rates any time soon.

"The international scenario, with rising commodity prices, is favoring emerging markets," said Vitor Suzaki, an analyst at brokerage Lerosa Investimentos in Sao Paulo. "But politics limit the advance of Brazil’s assets. Any kind of threat to the recovery plan is seen with a lot of concern."

The Ibovespa was the world’s best performing major stock index in the first four months of the year on wagers that the removal of President Dilma Rousseff -- who has temporarily stepped down to face an impeachment hearing -- would usher in a new government better able to pull the country out of its worst economic slump in a century. Brazilian stocks fell in May as investors weighed whether Acting President Michel Temer would be able to push unpopular fiscal measures through a fractured Congress.

Some stocks that depend on domestic demand, including Localiza Rent a Car SA, were among the worst performers on the Ibovespa after O Globo newspaper reported that a federal prosecutor asked the Supreme Court to issue arrest warrants for Senate President Renan Calheiros, former President Jose Sarney and Senator Romero Juca amid a corruption probe. Antonio Carlos de Almeida Castro, a lawyer for Juca and Sarney, said such a move would be unjustified and denied wrongdoing. In a statement, Calheiros said he didn’t do anything that could be interpreted as an attempt at obstructing justice and that such a measure would be “unreasonable, disproportional and abusive.” The prosecutor’s office declined to comment. All three men are members of Temer’s PMDB Party.

The Ibovespa added 0.1 percent to 50,487.86 at the close of trading in Sao Paulo. Petrobras climbed 1.9 percent as crude extended gains before the release of U.S. government data forecast to show stockpiles fell for a third week, trimming a glut. Localiza retreated 3.5 percent, and cosmetics maker Natura Cosmeticos SA fell 2.3 percent.

Brazil’s benchmark gauge is trading at 11.8 times estimated earnings, which is 4.1 percent below the valuation of the MSCI Emerging Markets Index. This is the first time since the end of February that Brazilian stocks are cheaper than its peers.

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