Ibovespa Climbs to Three-Year High on Brazil Economic Outlook

(Bloomberg) -- The Ibovespa rose to a three-year high as President Michel Temer expressed confidence the country is getting back on track and predicted an economic rebound will take hold in the final three months of the year. The real was little changed.

The benchmark equity gauge added 1.5 percent to 62,696.11 at the close of trading in Sao Paulo, the highest level since January 2013. Petroleo Brasileiro SA, the state-controlled oil company, was the biggest contributor to the Ibovespa’s advance after it said crude and gas output rose to a record in September.

Brazilian assets are among the best performers in the world this year on speculation that Temer will be able to win back investors and help restore growth. The country is coming out of the worst of its recession as investors and consumers gain confidence, Temer said at a summit in Goa, India, over the weekend. Valor Economico reported Monday, citing officials it didn’t identify, that the government expects lower fuel prices, the repatriation of funds held illegally overseas and a spending bill approved in a first-round vote last week to fuel a rebound.

"The domestic environment is improving with the fiscal adjustment bill and rising business confidence," said Italo Abucater, the head of foreign-exchange trading at Icap Brasil, who expects the real to rise to 2.9 per dollar by November. "There is also expectations about the repatriation bill, which is improving capital inflows to Brazil."

A second vote on the spending-cap bill, a key measure to trim the near-record budget deficit, is expected to take place in the Lower House by the end of the month. The legislation then goes to the Senate, where it also requires approval by a three-fifths majority in two separate votes.

"Temer has shown strength in his efforts to fix the economy, so the market remains optimistic," Paulo Figueiredo, an analyst at FN Capital, said from Petropolis, Brazil. "Hope is the name of the game here." 

Forty-eight of the Ibovespa’s 58 stocks rose. Toll road company CCR SA advanced 3.9 percent, the best performer among companies that depend on domestic demand. Phone carrier Tim Participacoes SA advanced 0.2 percent after Barclays Plc recommended buying the stock. Options on Brazilian stocks expired Monday at the local exchange.

Petrobras rose 3.9 percent to a two-year high following the output report and after saying it’s in advanced talks to sell its gas distribution unit to Ultrapar Participacoes SA.

The real gained less than 0.1 percent to 3.2046 per dollar on Monday, paring earlier gains of as much as 0.5 percent, with traders saying this was probably due to one particular capital flow, as trading volume has been low for the day.

"I see an specific flow, tied to the exercise of stock options," said Cleber Alessie, a currency trader at H.Commcor DTVM in Sao Paulo.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, were unchanged at 11.97 percent.

--With assistance from Aline Oyamada and Vinícius Andrade To contact the reporters on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net, 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