Brazil Stocks Drop on Economic, Profit Outlook; Bolsa Falls

By Paulo Winterstein and Alexander Ragir

Nov. 14 (Bloomberg) -- Brazilian stocks fell, led by retailers and banks, on concern the economic slowdown and credit crisis will linger into 2009, hurting the outlook for earnings.

Uniao de Bancos Brasileiros SA paced a decline for banks after UBS AG cut its profit estimates for the country's biggest lenders. Lojas Renner SA plunged 6 percent as JPMorgan Chase & Co. said there has been a ``steep decline'' in consumer credit before the holiday season. Eletropaulo Metropolitana SA fell the most on the Bovespa after the utility reported lower profit.

``A part of the global recession is already priced in but nobody knows how deep the recession will be,'' said Eduardo Favrin, who oversees $3 billion as head of equities at HSBC Investments Brasil in Sao Paulo. ``Every strong rally will be followed by profit taking. A strong conviction is something nobody really can have at this point.''

The Bovespa slid 0.6 percent to 35,789.1 today for a weekly decline of 2.4 percent. The BM&FBovespa Small Cap index sank 0.9 percent. The BM&FBovespa MidLarge Cap index dropped 0.8 percent. Mexico's Bolsa fell 0.8 percent, while Chile's Ipsa gained 0.9 percent.

Unibanco, which is being taken over by Banco Itau Holding Financeira SA, slid 2.4 percent to 14.05 reais. UBS cut next year's profit estimates by 12 percent on average for the four biggest banks. UBS reduced their loan growth forecast to 12 percent from the previous estimate of 21 percent.

No Gain in 2008

Brazilian stocks are unlikely to gain until next year because the slowdown in the domestic economy may last until the fourth quarter of 2009, Banco Santander SA said.

The first half of next year may be ``the most likely time to adopt a more aggressive investment approach,'' wrote Santander analyst Marcelo Audi in a note to clients. ``Our earnings forecasts are also deteriorating fast, led by our recent downward revision of macro forecasts and the continued deterioration in the global economic scenario.''

The Bovespa index has declined 44 percent this year.

Cyrela Brazil Realty SA Empreendimentos & Participacoes slid for the third time this week after it cut its forecast for contracted sales and new projects in 2008 because of ``uncertainties about the impact of the economic crisis on Brazil's economy.''

Cyrela dropped 4.6 percent to 7.40 reais. Third-quarter net profit of 72.4 million reais ($31.3 million) missed the 138.3 million-real average estimate in a Bloomberg survey of three analysts.

Retailers Fall

Lojas Renner, Brazil's biggest publicly traded clothing retailer, dropped 6 percent to 13.91 reais.

``From sharp drops in consumer confidence to a steep decline in consumer credit supply, all economic indicators are pointing to a demand deceleration ahead of the holiday season and 2009, especially in Mexico and in certain categories in Brazil,'' wrote JPMorgan analysts Andrea Teixeira and Thiago Queiroz in a note.

Eletropaulo, the Brazilian unit of AES Corp., dropped 9.2 percent to 26.78 reais, leading declines on the Bovespa index. Profit plunged 25 percent from the year-ago quarter to 148.3 million reais as personnel costs rose.

Mexico's Bolsa index fell for the third time in four days, bringing its weekly loss to 1.5 percent, as cement-maker Cemex SAB dropped for an eighth day.

Cemex slid 5 percent to 6.80 pesos after UBS cut its share- price estimate on concern a weaker peso will lead to higher debt costs and losses on derivatives.

Argentina's Merval index climbed 0.7 percent, Colombia's IGBC rose 3.2 percent and Peru's Lima General index retreated 2.1 percent.

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