Bloomberg News

Bovespa Index Holds Near Five-Week High as Fed Extends Stimulus

June 20, 2012

The Bovespa (IBOV) index held near a five- week high after the Federal Reserve said it will extend a program to shore up growth in the U.S., Brazil’s second-biggest trading partner.

PDG Realty SA Empreendimentos & Participacoes and Brookfield Incorporacoes SA, two of the three cheapest stocks by valuation on the benchmark, led gains by homebuilders. Oil company Petroleo Brasileiro SA advanced after a news report said it will recommend fuel price increases of 15 percent in its business plan to be released June 25. Competitor OGX Petroleo & Gas Participacoes SA followed crude lower.

The Bovespa was little changed at 57,166.55 at the close in Sao Paulo after reversing an earlier drop of as much as 1.2 percent. Thirty-three stocks gained on the measure while 31 fell. The real rose 0.1 percent to 2.0259 per U.S. dollar.

“The market wants to believe that further stimulus measures coming from the Federal Reserve will help to boost growth,” Rogerio Freitas, a partner at Rio de Janeiro-based hedge fund Teorica Investimentos, said in a phone interview. “More liquidity may help to lift equities for a while, but I don’t think it will reverse the global slowdown.”

The Fed said it will expand a program to replace short-term bonds with longer-term debt by $267 billion through the end of the year in a bid to reduce unemployment and protect the expansion. The continuation of the initiative “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said today in a statement.

PDG, Brookfield

PDG added 6.2 percent to 3.78 reais. Brookfield jumped 3.3 percent to 3.70 reais.

Petrobras, as Petroleo Brasileiro is known, advanced 1.3 percent to 19.90 reais. The company will recommend fuel price increases of 15 percent in its business plan to be released June 25, O Estado de S. Paulo reported, citing people it did not name. Petrobras won’t comment on the business plan until after announcing it publicly, the company’s press office said in an e- mailed response to questions.

The Bovespa dropped before the Fed’s announcement on speculation recent gains may have been excessive. Brazil’s benchmark equity gauge advanced 3.3 percent in the three days through yesterday.

Europe’s debt crisis and the outlook for growth in the U.S. are among the main issues preventing Brazilian stocks from posting a sustained recovery, according to Walter Mendes, a partner at Cultinvest Asset Management in Sao Paulo.

“The Bovespa index will probably keep swinging between gains and losses until there is more positive news coming from the U.S. and especially Europe,” Mendes said in a phone interview.

Cosan, Renova Energia

Sugar-cane processor Cosan SA Industria e Comercio slid 2 percent to 31 reais after Deutsche Bank AG lowered its recommendation to hold from buy.

Energy company Renova Energia SA declined 1.3 percent to 30.99 reais, the lowest since April 18, after saying it suspended a plan to convert common shares into preferred stock for as many as 15 days starting today.

The Bovespa entered a bear market on May 17 after tumbling 21 percent from this year’s high on March 13 through that day. The gauge has since pared the drop to 16 percent and trades at 10.2 times analysts’ earnings estimates for the next four quarters, in line with the ratio for MSCI Inc.’s measure of 21 developing nations’ equities, data compiled by Bloomberg show.

Trading volume was 6.82 billion reais ($3.37 billion) in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares with a daily average of 7.43 billion reais this year through June 15, according to data from the exchange.

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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