Brazil Stocks Plunge on Lower Growth Prospects, Currency Losses

By Paulo Winterstein

Oct. 15 (Bloomberg) -- Brazilian stocks plunged the most in a decade after analysts said currency losses may cost companies as much as $27 billion and reduced forecasts for economic growth.

Banco Itau Holding Financeira SA and railroad operator ALL America Latina Logistica paced declines in banks and industrial companies after JPMorgan Chase & Co. Deutsche Bank AG and Standard & Poor's said Brazil's economy may grow less than 3 percent. Cia. Vale do Rio Doce and Petroleo Brasileiro SA dropped after metal prices tumbled and analysts lowered their oil forecasts. Rossi Residencial SA led homebuilders lower after JPMorgan said sales may weaken in the fourth quarter.

The concern is ``the magnitude of contagion the financial problems will have on the real economy,'' said Daniella Marques, who manages about 1.75 billion reais in assets at Mercatto Gestao de Recursos in Rio de Janeiro. ``Markets will stay volatile until this is better understood.''

The Bovespa slid 4,736.01, or 11 percent, to 36,833.02, erasing about 80 percent of its biggest rally this decade. Trading was extended by 30 minutes after a 10 percent decline earlier triggered a halt. Mexico's Bolsa dropped 5 percent and the MSCI Latin America Index fell 14 percent.

Brazil's economic growth will slow more than previously expected next year as the global credit crunch restricts financing in the local economy, Standard & Poor's analyst Lisa Schineller said today.

Slowing Growth

Brazil's economy will expand 3 percent or less next year, down from a forecast of 4 percent made just last month, Schineller said. JPMorgan forecasts Brazil's economy to grow 2.8 percent in 2009, down from 5 percent this year. Deutsche expects the Brazilian economy to expand 2.2 percent in 2009, compared with the previous forecast of 3.6 percent.


These forecasts compare with the 4.5 percent growth projected in the Brazilian government's 2009 budget and the 3.7 percent median estimate of economists surveyed by Bloomberg.

Itau, Brazil's second-biggest non-state bank, fell amid doubt that U.S. plans to bail out banks will keep the economy out of a recession. The stock dropped 11 percent to 26.09 reais.

ALL, Latin America's biggest railroad operator, slid 6.2 percent to 12.90 reais.

The U.S. is in a recession and policy makers' interest-rate stance is aimed at addressing the risks of a deeper downturn, according to San Francisco Federal Reserve President Janet Yellen. Confidence in the global economy fell in October after a deepening freeze in financial markets increased the chances of a recession, a survey of Bloomberg users on six continents showed.

Commodity Producers Slide

The worst financial crisis since the Great Depression is also freezing credit and thwarting acquisitions and expansions. Global miner Rio Tinto Group may delay the planned sale this year of $10 billion of assets.

Vale, the world's biggest iron-ore and nickel miner, fell 15 percent to 23.50 reais, the biggest decline since at least 1994. Bradespar SA, part of Vale's controlling shareholder, lost 19 percent to 17 reais. The Bloomberg Base Metals 3-Month Price Commodity Index dropped for the first time in three days, declining 7.1 percent to 156.68.

Petrobras slid 12 percent to 24 reais. Brazil's state- controlled oil company had its 2009 share-price forecast cut 38 percent at Raymond James & Associates, citing the prospect of lower crude prices. Oil fell below $75 a barrel for the first time in more than a year.

Rossi dropped 16 percent to 3.19 reais. Homebuilders may report weaker sales in the fourth quarter as the global slowdown affects Brazil's growth, JPMorgan analyst Adrian Huerta wrote.

Negative Feedback

``The likelihood of negative feedback about sales in October from management on the mid-November conference calls is high,'' Huerta wrote in a note to investors. ``Fundamentals and growth expectations are likely to deteriorate.''

Net Servicos de Comunicacao SA fell after Deutsche said its profit will be hurt by the ``deteriorating'' economy. Brazil's biggest cable-TV operator dropped 8.1 percent to 13.33 reais. Net is ``attractive only in the longer term once the economy stabilizes,'' wrote Deutsche analyst Miguel Garcia.

Brazilian companies may post 60 billion reais of losses related to foreign-exchange derivatives and several may go bankrupt, former central bank deputy governor Paulo Vieira da Cunha said today. Brazilian companies made ``very imprudent bets'' on exchange rates, he said.

The BM&FBovespa MidLarge Cap index dropped 11 percent, while the BM&FBovespa Small Cap index dropped 10 percent.

Bolsa Drops

Mexico's Bolsa index fell for the first time this week, led by mining companies and retailers, after Deutsche cut its gross domestic product growth estimate to 1.1 percent from 3.5 percent.

Industrias Penoles SAB, the world's largest primary silver producer, fell the most in a week as prices of the metal tumbled. Grupo Mexico SAB slipped as copper fell more than 10 percent.

Penoles fell 14 percent to 134.91 pesos. Grupo Mexico declined 16 percent to 8.40 pesos. Soriana dropped 1.4 percent to 27.49 pesos.

Elsewhere in Latin America, Argentina's Merval fell 12 percent, Colombia's IGBC slipped 6.4 percent and Peru's Lima General index slid 8.6 percent. Chile's Ipsa slipped 0.4 percent.

-- With reporting by Alexander Ragir in Rio de Janeiro, William Freebairn in Mexico City, James Attwood in Santiago and Fabio Alves in New York. Editor: Allen Wan

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.