Bloomberg News

Bovespa Falls to Lowest in Eight Weeks, Led by Oil Companies

October 03, 2011

Oct. 3 (Bloomberg) -- The Bovespa stock index fell to an eight-week low, extending its slide after the biggest quarterly drop since 2008, on concern that a worsening Greek debt crisis will hurt demand for Brazil’s commodity exports.

Oil companies Petroleo Brasileiro SA and OGX Petroleo & Gas Participacoes SA followed crude futures lower and contributed most to the index’s drop. Miner MMX Mineracao & Metalicos SA posted the biggest drop of the gauge after its recommendation was cut at Morgan Stanley. Gafisa SA led a rout for homebuilders and Banco do Brasil SA paced losses for banks after Credit Suisse Group AG and Banco BTG Pactual SA recommended cutting holdings in the two industries.

The Bovespa fell 2.9 percent to 50,791.53 at 4:15 p.m. New York time, the lowest closing level since Aug. 8. Sixty-one stocks dropped on the index while seven advanced. The real weakened 1.2 percent to 1.9010 per dollar.

“Put simply, the current global outlook offers no reason whatsoever to be more confident in stock markets,” Carlos Sequeira, an analyst at BTG, wrote in a note to clients today. “Volatility and risk aversion should continue in the months to come.”

Global stocks and commodities dropped amid mounting concern that a Greek default will derail the global economic recovery. The Standard & Poor’s GSCI index of 24 raw materials declined 0.9 percent.

State-controlled oil producer Petrobras dropped 3.6 percent to 18.41 reais. Billionaire Eike Batista’s OGX sank 4.8 percent to 10.95 reais. MMX tumbled 7.7 percent to 6.51 reais after Morgan Stanley cut its recommendation to “equal-weight” from “overweight.”

‘Defensive’ Stocks Recommendation

Investors should seek out Brazilian companies least vulnerable to inflation and a slowdown in global economic growth as Europe’s debt crisis increases trading volatility, according to Credit Suisse analyst Andrew T. Campbell and BTG’s Sequeira. They recommended investors buy “defensive” stocks such as phone operator Telecomunicacoes de Sao Paulo SA, known as Telesp, and meatpacker BRF Brasil Foods SA, while cutting holdings of banks and homebuilders.

Gafisa slid 5.6 percent to 5.07 reais. Banco do Brasil declined 3.7 percent to 23.93 reais. Telesp rose 1.5 percent to 49.19 reais while rival Tim Participacoes SA led gains on the index, advancing 3.5 percent to 9.00 reais.

Economists covering Brazil cut their 12-month inflation estimate for the first time in six weeks after the central bank signaled further interest rate cuts won’t stoke inflation. Consumer prices will rise 5.71 percent in the next 12 months, according to the median forecast in a Sept. 30 central bank survey of about 100 economists published today. The forecast was down from a 5.76 percent forecast the previous week that was the highest this year.

Bear Market

The Bovespa entered a bear market in July after plunging 20 percent from its bull-market peak last year. The measure has since extended that drop to 30 percent and trades at 9 times analysts’ earnings estimates, according to weekly data compiled by Bloomberg. That compares to a ratio of 9.2 for MSCI Inc.’s gauge of 21 developing nations’ equities.

Traders moved 6.4 billion reais ($3.4 billion) in stocks in Sao Paulo yesterday, data compiled by Bloomberg show. That compares to a daily average this year of 6.53 billion reais through Sept. 14, according to data from the exchange.

--Editors: Richard Richtmyer, Brendan Walsh

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

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


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