(BBG – click to see) Brazil’s stocks countered a rout in developing nations after a slide of the Ibovespa to the brink of a bear market enticed some buyers. The real led world gains.
The equity benchmark erased earlier losses after its valuation touched the lowest level in six months. The gauge is still down almost 20 percent from this year’s peak in May amid forecasts Latin America’s largest economy is set for the worst recession in 25 years. The currency posted the biggest advance among 16 global major currencies tracked by Bloomberg.
“Some investors may be finding interesting opportunities after the recent slump,” Pablo Spyer, a director at Mirae Asset Wealth Management, said from Sao Paulo. His firm oversees 4.5 billion reais ($1.3 billion). “That doesn’t change the fact that we’re in a critical situation. Our crisis is far from ending, and the international scenario is very negative too.”
Investors have been pulling money from Brazil as President Dilma Rousseff struggles to revive an anemic economy amid a widening political crisis. Diminished support in Congress has complicated her efforts to keep a lid on spending with lawmakers maneuvering to undermine her austerity program. To make matters worse, the selloff in developing nations since China’s yuan devaluation last week is adding to concern demand for raw materials from China will slow down.
The Ibovespa rose 0.1 percent to 46,649.23 at the close of trading in Sao Paulo, after falling as much as 1.2 percent. The real gained 1 percent to 3.4587 per dollar.
The recent slide in the stock gauge sent its valuation to 10.9 times estimated earnings, the lowest since February, according to data compiled by Bloomberg. Still, UBS AG’s strategists say shares are expensive and will probably trail other developing nations as earnings remain in the doldrums.
Stocks are trading at 11.7 times trailing earnings, compared with 5.8 times in bear markets in January 1999, October 2002 and October 2008 and the 17-year average of 10, the firm said.
“With earnings growth having been negative since 2011, and prices having adjusted less, the market remains expensive,” the analysts wrote. Brazil is “not close to trough valuations in equities.”
Souza Cruz SA jumped after British American Tobacco Plc increased the offer to buy the stake it doesn’t already own in the company. Homebuilder Rossi Residencial SA rallied as newspaper Folha de S.Paulo reported the company is planning to sell buildings to raise cash.
Heightened swings in the Brazilian currency add to the risk for investors wanting to take advantage of the highest interest rates among the biggest economies. Borrowing dollars at the end of July and selling them to buy reais in so-called carry trades lost 0.4 percent as of Thursday.