Brazilian Stocks Advance as Morgan Stanley Says Buy Petrobras

  • Oil producer’s gain helps lift benchmark Ibovespa index
  • Lender Itau contributes the most to the stock gauge’s advance

The Ibovespa rose as new rules on energy exploration improved the outlook for Petroleo Brasileiro SA, the state-controlled producer fighting to recover from a corruption scandal that wiped out $20 billion in market value in a little more than two years.

Voting shares of Petrobras, as the crude giant is known, were among the best performers on the benchmark equity index as Brazil’s lower house approved a bill relieving the company of the obligation to participate in all offshore drilling. Morgan Stanley recommended buying the stock after the recent advance in crude. Lender Itau Unibanco Holding SA contributed the most to the gauge’s advance.

A symbol of Brazil’s ambitions in the past decade, Petrobras is scaling back its operations after prosecutors and the federal police unveiled in 2014 a major graft scheme involving some top executives, politicians and big builders. With the investigation still going on, the company has replaced its management and is trying to reduce its $126 billion debt burden. The company Thursday said it will sell bonds and use the proceeds to buy back as much as $2 billion of other debt.

"Petrobras’s prospects look much brighter now as a good recovery plan has been put in place," Guilherme Affonso Ferreira, a partner at the asset management firm Teorema Investimentos and a board member of the oil producer, said from Sao Paulo. "That makes the company attractive again."

The Ibovespa gained 0.2 percent to 52,014.66 at the close of trading in Sao Paulo as 31 of its 59 stocks climbed. Itau rose 1 percent, while Petrobras’s voting stock added 2.4 percent, extending this year’s gains to 40 percent. Oil is up 25 percent this year.

"Our overweight rating is driven by improved fundamentals and higher oil prices," analysts at Morgan Stanley led by Bruno Montanari wrote in a note to clients dated Thursday. "Asset valuations are likely to improve in a higher oil price environment." The bank estimates crude prices will advance to $80 a barrel in the long term.

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