Brazil’s Stocks Lead Global Rout as Investors Flee Risky Assets

Updated on
  • Commodity producers are worst perfomers on Ibovespa index
  • Worldwide weakness may threaten recovery of local economy

Brazilian stocks posted the biggest losses among major markets as concern that growth will falter worldwide after Britain’s decision to leave the European Union spurred a rout in riskier assets.

Seven of the 10 worst performers on the benchmark Ibovespa were linked to commodities. Vale SA, the world’s biggest iron-ore miner, declined for the first time in six days. Steelmaker Cia. Siderurgica Nacional SA, known as CSN, was the worst performer on the index. State-controlled oil producer Petroleo Brasileiro SA contributed the most to the gauge’s drop as crude fell on a gloomy outlook for the global economy and amid signs that oil stockpiles remain ample.

After posting its biggest five-day advance since April, the Ibovespa lost momentum Tuesday on speculation that Brazil’s recovery from its worst recession in a century may be threatened by weak foreign demand. Exports account for about 12 percent of the country’s gross domestic product, which will contract 3.35 percent this year after shrinking 3.8 percent in 2015, according to economists surveyed by the central bank.

"Investors are swimming in a sea of uncertainty," said Paulo Figueiredo, an economist at asset management firm FN Capital in Petropolis, Brazil. "We don’t know where the world is heading or whether our economy will be able to rebound. Caution is the best approach."

The Ibovespa fell 1.4 percent to 51,842.27 at the close of trading in Sao Paulo as 42 of its 59 stocks declined. As the real lost 1 percent, the equity gauge was the worst performer in dollar terms among major stock benchmarks. Vale dropped 4.5 percent and Petrobras, as Petroleo Brasileiro is known, lost 5.9 percent. Raw-materials producers account for 21 percent of the gauge’s weighting.

The index has advanced 20 percent this year on bets that Acting President Michel Temer, who replaced Dilma Rousseff in May as she faces an impeachment trial for allegedly breaking budget laws, will be able to get support to measures aimed at shoring up the country’s finances and restoring growth.