Bloomberg News

Bovespa Index Rises Most in Three Weeks on Unexpected Rate Cut

September 01, 2011

Sept. 1 (Bloomberg) -- The Bovespa stock index rose the most in three weeks after Brazil’s central bank cut the benchmark lending rate for the first time in two years to shore up growth in Latin America’s biggest economy.

B2W Cia. Global do Varejo, Brazil’s largest online retailer, led gains on the gauge on speculation cheaper credit will boost sales. All 18 stocks in the BM&FBovespa Real Estate Index advanced. Banco Bradesco SA, Brazil’s second-biggest bank by market value, gained the most since March 2009.

The Bovespa rose 2.9 percent to 58,118.20 at the close of trading at 4:15 p.m. New York time, its fifth straight day of gains. Fifty-five stocks rose on the measure, while eight dropped. The real weakened 1.7 percent to 1.6166 per U.S. dollar, while yields on interest-rate futures contracts dropped.

The central bank unexpectedly cut interest rates yesterday as the risk of recession in Europe and the U.S. shifted policy makers’ focus away from the fastest inflation in six years. The decision makes Brazil the second in the Group of 20 after Turkey to use monetary policy to safeguard the economy against a global slowdown.

“The central bank is more pessimistic about the outlook for global growth,” Carlos Camacho, who helps oversee about $2.1 billion at GAP Asset Management in Rio de Janeiro, said in a telephone interview. “So it’s reducing interest rates now, before the worst happens, in an attempt to keep the Brazilian economy growing at a healthy pace.”

Benchmark Rate

The bank’s board, led by President Alexandre Tombini, voted 5-2 to cut the benchmark rate a half point to 12 percent after raising it at each of its previous five meetings. All 62 analysts surveyed by Bloomberg forecast no change, as was favored by the two dissenting board members.

Brazilian stocks were raised to “overweight” from “underweight” at JPMorgan Chase & Co. after the central bank’s decision was announced. The rate cut will “add momentum to the rally from the recent lows,” analysts including Emy Shayo Cherman wrote in a note to clients.

The Bovespa entered a bear market on July 27 after plunging 20 percent from its bull-market peak in November. The measure is up 8.9 percent this week.

Tecnisa SA rose 8.8 percent to 12.35 reais, leading gains by real estate companies. The BM&FBovespa Real Estate Index rose 6.2 percent. Bradesco gained 7.4 percent to 30.23 reais. B2W advanced 8.4 percent to 17.40 reais.

BM&FBovespa SA, the operator of Latin America’s biggest securities exchange, surged 8.3 percent to 10.10 reais, the most since May 2010. “Interest-rate cuts are music to our ears,” Chief Executive Officer Edemir Pinto said in a conference call today. The stock market should benefit from lower rates, Pinto said.

Relative Value

The Bovespa trades at 9.4 times analysts’ earnings estimates, near the lowest level since March 2009, according to weekly data compiled by Bloomberg. That compares to a ratio of 11.8 for the Shanghai Composite Index, 6 for Russia’s Micex and 14 for India’s Sensex.

Traders moved 9.46 billion reais ($5.85 billion) in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares to a daily average this year of 6.58 billion reais through Aug. 23, according to data from the exchange.

Foreign investors have pulled 579.4 million reais from Latin America’s largest equity market in the year through Aug. 22, according to the exchange.

--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 in New York at papadopoulous@bloomberg.net


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