Bloomberg News

Bovespa Falls as Eletrobras Posts Biggest Weekly Drop Since 2004

November 09, 2012

The Bovespa (IBOV) index dropped as Centrais Eletricas Brasileiras SA (ELET6) posted its biggest weekly slide since 2004 on concern the Brazilian government’s plan to lower electricity costs will hurt profits.

Braskem SA, Latin America’s largest petrochemicals maker, led declines on the gauge. Concert promoter T4F Entretenimento SA fell after posting third-quarter earnings that trailed forecasts. Banco do Brasil SA slid to the lowest since July.

The Bovespa fell for a third day, declining 0.3 percent to 57,357.71 at the close of trading in Sao Paulo and extending its weekly decline to 1.8 percent. Forty-two stocks fell on the gauge today while 24 gained. The real weakened 0.2 percent to 2.0462 per U.S. dollar.

“The government’s interference in the electric sector makes investors more cautious about putting money in Brazil because people worry that other sectors may also be targeted at some point,” Otavio Vieira, who helps manage 270 million reais as a partner at hedge fund Fides Asset Management, said by phone from Rio de Janeiro.

The gauge gained as much as 1 percent earlier as OGX Petroleo & Gas Participacoes SA rose even after posting third- quarter results that trailed analysts’ estimates.

Shares slid again after U.S. President Barack Obama said he was “open to compromise” on budget negotiations and reiterated that a solution must include spending cuts and raising revenue, including raising taxes on the wealthiest.

Eletrobras Swoons

Preferred shares of Eletrobras, as power company Centrais Eletricas is also known, fell 2.7 percent to 13.76 reais. The stock is down 18 percent since Nov. 2, the steepest weekly decline since December 2004.

Brazil’s government announced last week a plan to cut electricity costs in which utilities must agree to reduce rates when applying for contract renewals.

T4F, whose name stands for Time For Fun, tumbled 9.8 percent to 10.06 reais. The company posted third-quarter adjusted net income of 12.5 million reais, missing an average forecast of 15.6 million reais, data compiled by Bloomberg show. Twenty-three out of 35 companies on the Bovespa that have reported third-quarter earnings missed analysts’ forecasts.

“There haven’t been many companies that surprised positively this earnings season,” Alvaro Bandeira, a partner at Orama Asset Management, said by phone from Rio de Janeiro.

Braskem fell 4.7 percent to 13.85 reais. Banco do Brasil slid 2.3 percent to 20.95 reais.

Rally Since June

OGX gained 1.7 percent to 4.85 reais after earlier falling as much as 2.9 percent. The company posted a third-quarter loss excluding one-time charges of 343.3 million reais, compared with an average estimate among analysts of a 152.6 million reais loss, according to data compiled by Bloomberg.

The Bovespa has climbed 9.3 percent from this year’s low on June 5 as stimulus from central banks around the world eased economic concern and borrowing costs at a record low in Brazil boosted equity demand. The index trades at 15.5 times analysts’ earnings estimates for the next four quarters, which compares with the ratio of 11.3 times for MSCI Inc.’s measure of 21 developing nations’ equities, data compiled by Bloomberg show.

Trading volume was 6.7 billion reais in stocks in Sao Paulo today, according to data compiled by Bloomberg. That compares with a daily average of 7.23 billion reais this year through Nov. 7, according to data compiled by 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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