Brazil’s Stocks Extend World-Beating Gain as Rousseff on Trial

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  • Lenders Itau, Bradesco contribute most to Ibovespa’s advance
  • Optimism of government change lifts state-controlled companies

Brazil’s Ibovespa posted the world’s biggest year-to-date gain as investors bet that President Dilma Rousseff will be permanently removed from office this week, giving legitimacy to a new administration that has pledged to shore up the country’s finances and restore growth.

Banks Itau Unibanco Holding SA and Banco Bradesco SA contributed the most to the benchmark equity index’s gains Monday. State-controlled oil producer Petroleo Brasileiro SA, lender Banco do Brasil SA and power utility Centrais Eletricas Brasileiras SA, known as Eletrobras, advanced on prospects of a irreversible change in government.

Brazilian stocks have gained 64 percent this year in dollar terms amid optimism that Acting President Michel Temer, who will stay on as the nation’s leader if the Senate decides to impeach Rousseff, will be able to restore confidence in the region’s biggest economy. Brazil was cut to junk last year as political paralysis following a series of corruption allegations hampered efforts to fight the worst recession in a century. Rousseff addresses the Senate on Monday as she defends herself from accusations she mismanaged the budget.

"Now the market will start pricing in the economic recovery," James Gulbrandsen, Latin American chief investment officer at NCH Capital, said from Rio de Janeiro. "I don’t believe Temer will be able to pass all the measures he wants to, but the previous administration was so horrible that anything they get is better."

The Ibovespa advanced 1.5 percent to 58,610.39 at the close of trading in Sao Paulo. All but eight of the gauge’s 59 stocks gained. Itau rose 1.8 percent and Bradesco climbed 1.8 percent. Banco do Brasil added 4 percent, while Eletrobras rose 3.2 percent. Petrobras, as Petroleo Brasileiro is known, gained 2.5 percent after Chief Executive Officer Pedro Parente said the company will maintain its divestment target this year, fueling wagers that the producer’s turn-around plan is poised to work.

"Both local and foreign investors should feel safer knowing that Temer will have more power to implement the necessary reforms," Vitor Suzaki, an analyst at the brokerage Lerosa Investimentos, said from Sao Paulo.

Despite the positive mood, trading volume of stocks in Brazil was 23 percent below the 30-day average. Economic data to be released in coming days will help the market to calibrate its expectations over the timing of the rebound. On Tuesday, the national bureau of statistics is due to publish the unemployment rate; on Wednesday, economic growth for the second quarter; and on Friday, industrial production. The central bank monetary policy committee will also meet to set the benchmark interest rate on Wednesday.