By Alexander Ragir and William Freebairn
Nov. 12 (Bloomberg) -- Brazilian stocks tumbled the most in three weeks, led by raw-material companies, on concern the slowing economy and declines in commodity prices may hurt the earnings outlook for the nation's biggest producers.
Petroleo Brasileiro SA plunged 14 percent after Credit Suisse Group AG downgraded the oil producer on the prospect of lower earnings as crude prices drop. Usinas Siderurgicas de Minas Gerais SA led a decline in steelmakers as UBS AG said the metal price is likely to fall because Chinese demand is slowing. Tam SA, Brazil's biggest airline, dropped to the lowest in three years as domestic air traffic slowed last month.
``People are realizing that global growth in 2009 will be really low,'' said Eduardo Roche, who helps manage the equivalent of about $600 million at Banco Modal SA in Rio de Janeiro. For steel, ``the potential slowdown in demand could be very great.''
The Bovespa fell 7.8 percent to 34,373.99, the biggest drop since Oct. 22. Chile's Ipsa slid 3.5 percent. Mexico's Bolsa index lost 5 percent, led by companies that will be dropped from the MSCI Inc. index of Latin American stocks. The MSCI Emerging Markets Index fell 4 percent.
Petrobras, which reported a doubling of third-quarter profit yesterday, sank 3.29 reais to 20.62 reais. The shares were headed for their biggest drop since 1998 after Credit Suisse cut its rating on the stock to ``neutral'' from ``outperform'' and oil prices fell more than 5 percent.
``We are becoming increasingly concerned with the company's deteriorating cost structure and earnings outlook'' with oil prices at $60 a barrel, analyst Emerson Leite wrote in a note. He previously had an ``outperform'' rating on the shares.
Crude oil touched a 20-month low of $55.94 a barrel.
Steel Outlook
Usiminas, as Brazil's second-biggest steelmaker is known, dropped 9.3 percent to 22 reais.
``Chinese steel prices continue to decline and we expect Brazilian prices to follow suit,'' UBS wrote in a note.
Gol fell 1.2 percent to 7.95 reais. Domestic air travel by Brazilian airline companies slid 3.9 percent in October from the same period last year, according to ANAC, the National Agency of Civil Aviation in Brasilia.
``The question of falling demand is a big one for airlines,'' Roche said.
Azul Linhas Aereas Brasileiras, the Brazilian airline created by JetBlue Airways Corp. founder David Neeleman, should begin flights in December, the company said in a statement after the National Civil Aviation Agency approved the carrier's aircraft and business plans.
Tam SA, Brazil's biggest airline, lost 1.44 reais to 17.56 reais.
The BM&FBovespa Small Cap index dropped 4.9 percent. The BM&FBovespa MidLarge Cap index slipped 8.1 percent.
Bolsa Drops
Mexico's Bolsa index fell for a second day, led by companies that will be dropped from the MSCI Inc. Latin American index. Axtel SAB, Mexico's second-largest fixed-line phone company, fell to the lowest in three years after MSCI said it would remove the phone company from the index Nov. 25. Corporacion Geo SAB, Mexico's second-biggest homebuilder, will also be removed.
MSCI says $3 trillion is invested in funds that track its different indexes.
Axtel fell 11 percent to 5.47 pesos. Geo dropped 12 percent to 13.95 pesos.
Cemex SAB, North America's largest cement producer, slid 8.7 percent to 7.47 pesos, the lowest since March 1999, after Credit Suisse said costs for its debt may rise as it plans to sell $436 million in bonds.
Chile's biggest iron-ore producer, Cap SA, declined for a second day, losing 5.3 percent to 8,101 pesos. Industrial metal prices extended declines amid speculation that miners need more output cuts to match slowing demand from China.
In other Latin America markets, Argentina's Merval fell 5.5 percent, Peru's Lima General index retreated 3.4 percent and Colombia's IGBC slipped 1 percent.
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.
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