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Bovespa Futures Gain on Cheapest Valuation in Four Months

May 18, 2012

The Bovespa index snapped its longest losing streak in 10 years as the cheapest valuations since January spurred speculation the rout was excessive.

Vale SA (VALE3) rose the most in five weeks after saying it expects a recovery in iron ore prices in the second half of the year. Retailer Lojas Renner SA advanced as traders stepped up bets on interest rate cuts after a report showed Brazil’s economy unexpectedly contracted in March. PDG Realty SA Empreendimentos e Participacoes (PDGR3) led declines on the BM&F Bovespa Real Estate Index (IMOBBV), which dropped to a seven-month low.

The Bovespa added 0.9 percent to 54,513.16 at the close in Sao Paulo, paring its weekly decline to 8.3 percent. Brazilian stocks entered a bear market yesterday after tumbling 21 percent from this year’s high on March 13. The benchmark trades at 9 times analysts’ earnings estimates for the next four quarters, the lowest since Jan. 2.

“Some stocks look cheaper, and given how fast the market plunged in the past few days, a short-term rebound was expected,” Jose Luiz Garcia, who helps manage 3.2 billion reais ($1.6 billion) at Mercatto Gestao de Recursos, said by phone from Rio de Janeiro. “Still, I don’t think we’re seeing a sustained recovery. The outlook for growth seems to be getting worse everywhere.”

Thirty-eight stocks rose on the Bovespa today while 28 slid. The real weakened 0.8 percent to 2.0238 per U.S. dollar.

Vale Advances

Vale rose 2.6 percent to 35.70 reais. The world’s largest iron-ore producer expects China’s economy to grow almost 8.5 percent this year, Chief Executive Officer Murilo Ferreira told reporters at an event in Rio de Janeiro today. The company expects a recovery in iron ore prices in the second half after increased supplies from Australia and Brazil caused a recent decline, Jose Carlos Martins, the company’s head of ferrous and strategy, said at the same event.

Brazil’s seasonally adjusted economic activity index fell 0.35 percent in March from the previous month, the central bank said today. Economists expected a 0.49 percent increase, according to the median of 18 estimates in a Bloomberg survey.

In the Brazilian interest-rate futures market, yields on most contracts fell after the central bank data were released. The yield on the contract due in January dropped four basis points, or 0.04 percentage point, to 7.75 percent.

“The economic activity index signals the slowdown may be deeper than the market expected, which increases the odds that policy makers will keep lowering interest rates further,” Gustavo Mendonca, an economist Oren Investimentos, said by phone from Rio de Janeiro.

Renner, Hering

Lojas Renner SA jumped 3.5 percent to 58.60 reais. Cia. Hering (HGTX3), Brazil’s second-biggest clothing retailer by market value, rose 1.6 percent to 42.80 reais.

PDG, Brazil’s largest homebuilder by sales, tumbled 7 percent to 3.17 reais, pushing its weekly decline to a record 30 percent, as investors kept selling after first-quarter results missed estimates.

“There was a lot of disappointment among investors about homebuilders’ results, so everybody is adapting to a scenario of higher labor costs and lower profits,” Joao Pedro Brugger, who helps oversee 70 million reais at Leme Investimentos in Florianopolis, Brazil, said in a telephone interview today.

PDG posted on Monday adjusted net income of 49.8 million reais for the first three months of the year, according to an e- mailed statement. The mean estimate of five analysts was for an adjusted profit of 135.4 million reais, according to data compiled by Bloomberg.

Rossi Residencial SA (RSID3) lost 2.5 percent to 5.39 reais today, the lowest in a month. Brookfield Incorporacoes SA fell 1.6 percent to 3.65 reais. The BM&F Bovespa Real Estate Index tumbled 2.6 percent to 735.70 and declined 12 percent this week.

Bear Market

The MSCI BRIC Index also entered a bear market yesterday, having tumbled 20 percent from this year’s high in March. The plunge left equities in the biggest emerging economies trading at the lowest levels since 2009 versus global shares.

Stocks in Brazil, Russia, India and China are trading at relatively attractive valuations and may rally should oil prices climb or if economic growth picks up in China, said Geoffrey Dennis, Citigroup Inc.’s global emerging-market strategist in New York.

“Markets are quite cheap,” he said in a telephone interview. “They’re good long-term values. We’ve just got to wait for individual triggers to come through.”

To contact the reporters on this story: Ney Hayashi in Sao Paulo at; Denyse Godoy in Sao Paulo at

To contact the editor responsible for this story: David Papadopoulos at

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