Brazil’s Stocks Gain to Four-Year High Ahead of Rate Meeting

(Bloomberg) -- The Ibovespa rose to its highest level in more than four years, joining a global rally, as commodity producers from oil giant Petroleo Brasileiro SA to iron-ore miner Vale SA followed gains in raw materials and the market braced for the first rate cut since 2012.

Petrobras, as Petroleo Brasileiro is known, contributed the most to the benchmark equity index’s advance after the company’s board agreed to sell a refinery in Japan as part of a strategy to trim debt. For-profit college manager Kroton Educacional SA rose to the highest in almost two years before Wednesday’s central bank meeting at which economists expect policy makers to cut interest rates by 0.25 percentage point to 14 percent.

Brazilian stocks have gained 83 percent this year in dollar terms, the most among major global benchmarks. An increase in commodity prices and the expected lower borrowing costs are seen as boosting the government’s efforts to combat the worst recession in a century. Raw materials make up for more than half of the country’s exports, while producers account for 25 percent of the Ibovespa’s weighting.

"Brighter prospects for our exporters add to the investor euphoria over Brazil’s rebound," Hersz Ferman, an economist at the brokerage Elite Corretora, said from Rio de Janeiro.

The Ibovespa gained 1.7 percent to 63,782.21 at the close of trading in Sao Paulo, the highest since April 2012, as 49 of its 58 stocks advanced. Petrobras, as Petroleo Brasileiro is known, rose 3.1 percent and Vale added 2.6 percent. Steelmaker Gerdau SA gained 5 percent. Kroton climbed 4.3 percent, leading gains on the MSCI Brazil/Consumer Discretionary Index, which was the best performer among 11 industry groups.

"A more favorable international scenario is determinant today as risk aversion seems to be restrained," Pedro Paulo Silveira, chief economist at the brokerage Nova Futura, said from Sao Paulo. "The Ibovespa may reach 90,000 points by the end of this year and 100,000 point some time in 2017."

After the recent rally, the Brazilian stock index is trading at 14.1 times estimated earnings, the most expensive level since May 2015 and 13 percent above the valuation of the MSCI Emerging Markets Index.

Investors are still waiting for economic data to show the country is emerging from the worst of its slump. Retail sales in Latin America’s biggest nation fell 5.5 percent in August from a year earlier, more than the 5 percent drop forecast by 43 economists surveyed by Bloomberg.

--With assistance from Marisa Castellani To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Sebastian Boyd, Ney Hayashi