Bloomberg News

Bovespa Enters Bull Market as Valuations, Rates Spur Rebound

October 27, 2011

Oct. 27 (Bloomberg) -- Brazilian stocks entered a bull market as the cheapest valuations in more than two years and declining interest rates helped spark a rebound from the worst equity slump since the 2008-2009 financial crisis.

The benchmark Bovespa index gained 3.7 percent to 59,270.13 at the close of trading in Sao Paulo, extending its gain to 22 percent from the bear-market low on Aug. 8, after European leaders agreed to expand a bailout fund to stem the region’s debt crisis. The gauge had lost 33 percent from a November 2010 peak through that date, dragging its price to 7.9 times estimated earnings, the lowest since March 2009, according to data compiled by Bloomberg.

Brazil’s central bank has lowered the benchmark rate twice since August, cutting it to 11.5 percent, to shore up growth amid concern the European crisis could derail the global recovery. The cuts buoyed stocks by luring investors away from the country’s fixed-income assets and by deepening a slide in the currency that shored up exporters’ profit margins and made stocks cheaper in dollar terms.

The decline in the currency “was part of the market getting ridiculously cheap,” said Urban Larson, who helps manage about $2.2 billion in emerging-market assets at F&C Management Ltd. in London. “Valuations were irresistible to a lot of people. There’s still a lot of uncertainty in the world. We need less uncertainty for the market to really get going.”

Commodities have rebounded 5.9 percent since Aug. 8, boosting revenue for Brazil’s producers, as European policy makers stepped up their efforts to contain the region’s debt crisis, according to the Standard & Poor’s GSCI index of 24 raw materials.

Global Stocks, Commodities

Global stocks and commodities surged today as the euro region’s rescue fund was boosted to 1 trillion euros ($1.6 trillion) and investors agreed to a voluntary writedown of 50 percent on Greek debt.

A bull market is typically defined as an advance of at least 20 percent from the preceding bear-market low.

The Bovespa is still down 14 percent this year as concern persists about the impact of a slowing global economy and quickening domestic inflation. Economists cut their estimates for Brazil’s 2011 gross domestic product expansion to 3.3 percent from 4.5 percent at the beginning of the year, according to the central bank’s weekly survey published Oct. 24.

MMX Mineracao & Metalicos SA, the iron-ore producer controlled by billionaire Eike Batista, led gains on the Bovespa today, soaring 11 percent to 7.94 reais. The stock is up 33 percent since Aug. 8. Gerdau SA, Latin America’s largest steelmaker, rallied 7.6 percent to 15.39 reais, for a 40 percent advance in that period.

MRV Engenharia

MRV Engenharia & Participacoes SA, Brazil’s fifth-biggest homebuilder by revenue, paced gains for companies that depend on consumer demand, advancing 8.2 percent to 12.60 reais. The stock is up 28 percent since the Bovespa’s two-year low.

Analysts cut their forecasts for 2012 inflation for the first time in eight weeks, the latest central bank survey showed, after a report from the national statistics agency revealed that annual inflation had retreated from a six-year high, slowing in mid-October for the first time in 14 months.

The real plunged as much as 26 percent against the dollar from the end of July through Sept. 22 in intraday trading before paring its loss to 9.4 percent through today. The currency advanced 2.8 percent today to 1.7099 per dollar.

“We weren’t that bullish on Brazil in the last couple of years,” Nudgem Richyal, a money manager at JO Hambro Capital Management Ltd. in London, said Oct. 20. “We’ve become more sanguine recently given the selloff in the currency.”

--With assistance from Eduardo Thomson in Santiago. 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 in New York at papadopoulos@bloomberg.net


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