Brazil Stocks Fall on Global Slowdown Concerns; Bolsa Declines

By Paulo Winterstein and James Attwood

Dec. 11 (Bloomberg) -- Brazilian stocks fell on concern that slackening demand for metals and a deepening global recession may lead to an earnings contraction next year.

Gerdau SA paced losses for steelmakers as analysts said markets in the U.S. and Brazil will weaken and the U.S. automaker bailout plan ran into snags. Perdigao SA dropped for the first time in five days as Credit Suisse Group downgraded the food producer on slower global demand. Brasil Telecom Participacoes SA led declines on the Bovespa index after Valor Economico reported that regulators may delay Telemar Norte Leste SA’s purchase of the company by preventing them from combining Internet services.

“With or without a recession in Latin America, growth is going to slow down a lot,” said Eduardo Roche, who helps manage the equivalent of about $600 million at Banco Modal SA in Rio de Janeiro. “These worries about external growth and the auto industry package are the focus of our market, because a slowdown in the U.S. will affect everybody.”

The Bovespa dropped in the last five minutes of trade, erasing a gain of as much as 2.2 percent. The index closed down 485.33 points, or 1.2 percent, to 38,519.07. Mexico’s Bolsa dropped 1.7 percent, while Chile’s Ipsa added 0.6 percent.

Gerdau, the steelmaker which gets 46 percent its revenue from its North American operations, fell 4.4 percent to 15.80 reais.

The Bush administration’s $14 billion automaker bailout plan and other alternatives lack the votes to pass the Senate, as lawmakers seek to beat a deadline to keep General Motors Corp. and Chrysler LLC from collapsing.

Gerdau’s profit next year and in 2010 will be less than estimated earlier, Roger Downey, a Sao Paulo-based analyst with Credit Suisse, said in a Dec. 9 report. Downey cited lower prices and sales, and reduced Brazilian and U.S. steel demand.

“High exposure to U.S. markets should negatively impact Gerdau’s earnings momentum,” Downey said.

Brazil Profit Outlook

Brazil corporate earnings may slide 23 percent in 2009 as growth in the region’s largest economy slows to a forecast 2.2 percent from a previous 3 percent estimate, Citigroup strategist Geoffrey Dennis wrote. The expected profit slump compares with a 23 percent increase estimated in June, Dennis wrote in a note to clients today, predicting further earnings downgrades.

Latin American company earnings may fall 17 percent next year on slower economic growth and lower commodity prices, he said.

Perdigao dropped 4.8 percent to 35.85 reais. Brazil’s biggest food company is expensive and food producers could see demand falling in 2009, Credit Suisse analyst Marcel Moraes said.

Brasil Telecom dropped 7.7 percent to 19 reais. Brazil’s antitrust regulator ruled Telemar and Brasil Telecom must keep their Internet provider services separate, Valor Economico reported today. Brazil’s third-biggest fixed-line phone company, which has outperformed the Bovespa index this year, also was swapped for cheaper commodity stocks as prices rebounded today, Roche said in a phone interview.

Defensive Switch

“This week we’ve seen a switch in positions from more defensive stocks to commodity stocks,” he said. Brasil Telecom was down 14 percent through Dec. 8, compared with a 40 percent drop in the index. Brasil Telecom has dropped 15 percent in the last three days as the Reuters-Jeffries index rose more than 5 percent.

The Bovespa earlier gained on soaring oil prices and increasing bets that interest rates will be cut. Petroleo Brasileiro SA rose 1.8 percent.

The BM&FBovespa Small Cap index gained 1.3 percent. The BM&FBovespa MidLarge Cap index fell 1.4 percent.

Mexico’s Bolsa index fell for the first time in five sessions, led by cement-maker Cemex SAB on concern slowing economies in the U.S. and Mexico will hurt fourth-quarter earnings.

Cemex, North America’s biggest cement maker, dropped the most in 11 years as Banco Santander SA said fourth-quarter results would be “very weak” and U.S. initial jobless claims surged to a 26-year high. Cemex, which gets a quarter of revenue from the U.S., fell 19 percent to 11.41 pesos.

“For Latin America, we now expect outright recession to hit only Mexico,” Dennis wrote.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net;