Brazil Stocks Lead Global Drop as Appetite for U.S. Assets Rises

  • Bradesco slumps after disappointing profit from acquired unit
  • Investors flock to U.S. equities on optimism over Trump plans

The Ibovespa fell the most in a month as investors dumped Brazilian stocks and flocked to U.S. assets amid increasing bets on President-Elect Donald Trump’s plans to stimulate the growth of the world’s biggest economy.

Banco Bradesco SA contributed the most to the benchmark equity index’s decline as profit of about 100 million reais ($30 million) from the HSBC Holding Plc unit it acquired was deemed too low to justify the $5.2 billion deal that was wrapped up in July. The slump of Brazilian financial stocks Thursday -- the industry is the heaviest-weighted sector on the Ibovespa -- overshadowed miner Vale SA’s rally on expectations that an advance in commodity prices and a weaker real mean bigger profits on overseas sales.

Brazilian stocks have gained 65 percent in dollars this year, pushing valuations to a seven-year high in October, on speculation that the new government will be able to pull the country out of its worst recession in a century. The perception of improved prospects for U.S. companies amid optimism that Trump’s policies will benefit businesses makes emerging-market stocks relatively less attractive, threatening the year’s best-performing exchange.

"Republicans tend to adopt a more expansionist economic policy, and that’s luring investors from all over the world today to the U.S. market," Pedro Paulo Silveira, chief economist at the brokerage Nova Futura, said from Sao Paulo. "The result may be that Brazil’s own rebound is at risk."

The Ibovespa fell 3.3 percent to 61,200.96 in Sao Paulo as 45 of its 58 stocks declined. The Dow Jones Industrial Average, meanwhile, rose to an all-time high. The real lost 4.9 percent, the most since 2008, to 3.3932 per dollar on speculation the Federal Reserve will be more aggressive raising interest rates under Trump’s government, making the high-yielding Brazilian currency less appealing.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.11 percentage point to 12.26 percent. Should the reduction in Brazil’s benchmark Selic, initiated last month, take longer than previously expected, the recovery of the economy may be delayed. Bradesco lost 8.9 percent, rival Itau Unibanco Holding SA sank 5 percent and BM&FBovespa SA, the operator of the local exchange, slumped 3.4 percent.

For-profit college operator Estacio Participacoes SA extended a three-day drop to 9.9 percent after changes in the student financing program that may reduce universities’ earnings. State-controlled oil producer Petroleo Brasileiro SA followed crude lower ahead of the release of its third-quarter results.

President Michel Temer replaced impeached Dilma Rousseff as the head of Latin America’s largest nation in August vowing to reduce the budget deficit that made Brazil lose his investment grade last year. While the first part of the fiscal reform has already passed on the lower house, it may take many months for growth to accelerate again. Analysts that cover Brazil forecast the gross domestic product will shrink 3.3 percent in 2017, according to a central bank weekly survey.

As the domestic demand remains weak, the performance of exporters may avoid an even worse contraction for the economy. Vale added 8.2 percent Thursday after iron ore advanced to its highest price since Nov. 2014. Pulp producers Suzano Papel & Celulose SA and Fibria Celulose SA, which get most of their revenues from abroad, were the best performers on the Ibovespa. Trading volume of stocks was twice the 30-day average, and the stocks index traded at 13.4 times estimated earnings, 12 percent more expensive that the MSCI Emerging Markets Index.

    Before it's here, it's on the Bloomberg Terminal.