Bloomberg News

Bovespa Falls on Rate Bets, Report of Basel Surcharge Proposal

June 16, 2011

June 16 (Bloomberg) -- The Bovespa stock index dropped for a second day as traders raised bets for higher borrowing costs and concern mounted that proposed international regulations may subject banks to capital surcharges if they grow any bigger.

The MSCI Brazil/Financials Index fell the most in a week. Online retailer B2W Cia. Global do Varejo slumped the most in three months, leading losses by companies that depend on domestic demand. Miner Vale SA followed metal prices lower.

The Bovespa index fell 1.2 percent to 60,880.62 at the close of Sao Paulo trading at 4:15 p.m. New York time. Fifty-one stocks declined on the index, while 16 advanced. The real weakened 0.3 percent to 1.6050 per U.S. dollar. Brazil’s benchmark equity gauge is approaching a so-called bear market after falling 17 percent from a November peak amid concern quickening inflation will hurt economic growth.

“The markets reacted badly to the changes proposed by the Basel committee,” said Alvaro Bandeira, a director of Rio de Janeiro-based brokerage Ativa Corretora, in a telephone interview.

Draft plans circulated before a meeting next week of the Basel Committee on Banking Supervision would subject banks to a sliding scale depending on their size and links to other lenders, said two people familiar with the matter, who declined to be identified because the proposals aren’t public. Banks wouldn’t initially face the highest surcharge, which is intended as a deterrent to expansion, one person said. The largest banks may face a 3 percentage point levy at their current sizes, the person said.

Volatility Index

The CBOE Brazil ETF Volatility Index, a gauge of the cost of using options as insurance against declines in the iShares MSCI Brazil Index exchange-traded fund, rose 10 percent to a record-high 31.45.

Brazil’s central bank said today it will continue with its strategy of raising interest rates for a “sufficiently long” period, even as the country’s inflation outlook shows signs of improving, according to minutes of the June 7-8 policy meeting.

Policy makers raised the benchmark Selic target rate by a quarter point to 12.25 percent on June 8, continuing a strategy they began in April of tightening rates at a slower pace than earlier in the year.

The MSCI/Brazil Financials Index fell 1.7 percent to 883.39, the biggest drop since June 6, after earlier tumbling 3.3 percent. Banco do Brasil SA fell 2 percent to 27.05 reais.

Metals prices tracked by the Bloomberg Forward Global Base Metal Index dropped 0.5 percent to 253.54. Vale slid 1.1 percent to 42.78 reais.

Economic Data

B2W Varejo tumbled 4.3 percent to 20.24 reais.

The Bovespa earlier gained as much as 0.7 percent after a report showed jobless claims in the U.S. declined by 16,000 to 414,000 in the week ended June 11, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg projected 420,000 filings, according to the median forecast.

The Bovespa index trades at 10 times analysts’ earnings estimates, the lowest since January 2009, according to weekly data compiled by Bloomberg. That compares to a ratio of 12.5 for the Shanghai Composite Index, 6.6 for Russia’s Micex and 14.8 for India’s Sensex.

--With assistance from Jim Brunsden in Brussels. Editors: Richard Richtmyer, Brendan Walsh

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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