Brazil Rally Led by Petrobras Puts Ibovespa Within 5% of Target

  • Combined analysts estimates show room to rise after 39% gain
  • Benchmark index advances to one-month high on Wednesday

A rally in Brazilian stocks put the benchmark Ibovespa index at the narrowest discount to analysts’ target price in a month as state-controlled oil producer Petroleo Brasileiro SA climbed with energy prices.

The equity gauge advanced 1.5 percent to 60,254.34 at the close of trading in Sao Paulo, reaching the highest in a month. After climbing 39 percent this year on speculation the country was on its way to recovering from a recession, the Ibovespa has room to gain an additional 4.3 percent, according to the analysts’ average target prices for the index’s 58 members. The index is trading at 13.3 times estimated earnings, 6 percent more than the average for emerging markets.

Brazil optimists have gotten a boost this week as President Michel Temer, who replaced Dilma Rousseff as the leader of Latin America’s biggest economy on Aug. 31, increased efforts to seek support to a legislation that limits government spending and is expected to be voted on Monday. The measure is seen as a signal of the new administration’s commitment to austerity after Brazil’s credit rating was cut to junk last year.

"Investors are very excited with the prospects for the country," Hersz Ferman, an analyst at the brokerage Elite Corretora, said from Rio de Janeiro. "Temer’s proposals have pleased the market a lot. Much of the progress has already been priced in shares, but the expectation of further improvement keeps rising."

Petrobras, as Petroleo Brasileiro is known, contributed the most to the Ibovespa’s advance Wednesday as crude rallied and as Brazil’s lower house was expected to resume a vote on a bill that may free the company from the obligation to operate all fields in Brazil’s so-called pre-salt area. The stock, which accounts for 10 percent of the Ibovespa’s weighting, rose 4 percent.

"Oil is the name of the game today," Raphael Figueredo, an analyst at the brokerage Clear Corretora, said from Sao Paulo.

Health care services provider Qualicorp SA climbed the most in one week. Usinas Siderurgicas de Minas Gerais SA, known as Usiminas, led a rally among steelmakers as metals advanced. Itausa - Investimentos Itau SA rebounded after saying there’s no investment decision to be announced. The holding company fell 1.4 percent Tuesday after people familiar with the matter said the company plans to join Cambuhy Investimentos Ltda. in a bid for a controlling stake in Petrobras’s fuel distribution business.

Phone carrier Oi SA rose 1.8 percent after two people with direct knowledge of the matter said Elliott Management Corp., the hedge fund company led by billionaire Paul Singer, is in talks to invest as much as 10 billion reais ($3.11 billion) in the company.

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