Ibovespa Falls as Stocks Seen Too Pricey Amid Gloomy GDP Outlook

  • Companies that depend on domestic demand are worst performers
  • Oil producer Petrobras advances on plan to sell stake in unit

The Ibovespa equity index tumbled as investors backed off from stocks they deem too expensive after this year’s rally drove valuations to the highest in almost three months.

Lender Itau Unibanco Holding SA contributed the most to the Ibovespa’s drop on Monday, and an MSCI index of consumer stocks was the worst performer among 10 industry groups. Clothing retailer Lojas Renner SA dropped the most in three months ahead of its quarterly results, which were set to be announced after markets close.

Investors have piled into Brazilian stocks this year, making the Ibovespa the world’s best performing index in dollar terms, on expectations that Acting President Michel Temer would be able to kick-start economic growth and get the nation’s budget deficit under control. But while expectations run high, forecasts remain gloomy. Economists in a central bank survey released Monday said Brazil’s economic contraction will be deeper than they expected a week ago.

"The market has gotten ahead of itself," Dan Raghoonundon, a Latin American equity analyst at Janus Capital Group Inc., said from Detroit. "The problems of Brazil are still very real."

The Ibovespa fell 0.2 percent to 56,872.73 at the close of trading in Sao Paulo as 36 of its 59 stocks dropped. The gauge is trading at 12.8 times estimated earnings, 14 percent above its three-year average. Itau declined 0.8 percent. Renner lost 3.5 percent. Power utility Cia. Energetica de Minas Gerais fell after saying it doesn’t plan to sell its controlling stake in Light SA.

Brazil’s benchmark index had advanced as much as 0.4 percent earlier as state-controlled oil producer Petroleo Brasileiro SA said it expects to sell a stake in its fuel distribution unit early next year, as it moves to reduce leverage. Petrobras, as the company is known, added 0.8 percent. Miner Vale SA and steelmakers including Metalurgica Gerdau SA followed an advance in iron ore.

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