Ibovespa Approaches Bull Market as Commodity Producers Rally

The Ibovespa approached a bull market as a plunge in the currency and signs of an economic rebound in China, Brazil's biggest export market, fueled a rally in commodity exporters including Vale SA and Gerdau SA.

The gauge touched 54,112.60 in Sao Paulo trading, rising 20 percent from its July 3 low of 45,044.03. Vale, the heaviest-weighted stock on the benchmark, climbed 25 percent during the period. Eike Batista's OGX Petroleo & Gas Participacoes SA and state-run oil producer Petroleo Brasileiro SA also were among the biggest contributors to the index's gain.

The real has dropped 7.1 percent in the past three months, the most among 16 major currencies tracked by Bloomberg, lifting exporters as it drives up the local-currency receipts on their overseas sales. The Standard & Poor's GSCI index of 24 raw materials has increased 5.5 percent in the same period as manufacturing strengthened and imports increased in China.

"Lately we've seen China starting to stabilize, which helps to inject a little positive sentiment back into the Brazilian market," Sean Lynch, the Omaha, Nebraska-based global investment strategist for Wells Fargo Private Bank, said in a phone interview. His firm oversees about $170 billion.

The Ibovespa (IBOV) led gains among the world's 20 biggest equity benchmarks today, rising 2.6 percent to 53,702.95 at 2:33 p.m. local time with 49 of the 73 member stocks trading higher.

Brazil's main stock index is the first among the biggest emerging markets to approach a bull market this year. Russia's Micex (INDEXCF) entered a bull market Sept. 14, 2012, and has since lost 7.3 percent. India's Sensex (SENSEX) is down 0.8 percent this year after entering a bull market in 2012. China's Shanghai Composite (SHCOMP) entered a bear market June 25 and has since gained 9.2 percent.

Slowing Inflation

Seven of nine raw-material companies on the Ibovespa reported earnings that exceeded forecasts for the three months ended in June, according to data compiled by Bloomberg. It was the first time that a majority of them beat estimates since the second quarter of last year.

Signs that inflation is slowing have also helped to lure investors to Brazilian equities, Lynch said. Data today from the Rio de Janeiro-based national statistics agency showed that consumer prices as measured by the IPCA increased 6.09 percent in August from a year before after rising 6.27 percent in July.

OGX, Ibovespa's third-heaviest weighted stock, rose the most on the benchmark today, climbing 22 percent to 50 centavos after calling Batista to buy $100 million of new shares and saying it may request additional disbursals on a $1 billion put option based on cash needs. The shares have climbed 28 percent since the Ibovespa's bear market low, reducing this year's slump to 88 percent.

Ibovespa Change

OGX's turmoil and its influence over the Ibovespa's performance spurred BM&FBovespa SA to consider changing the benchmark's methodology and exclude any companies whose shares trade for less than 1 real. While Batista's oil producer is among the five smallest companies on the Ibovespa, it remains as one of the heaviest-weighted stocks on the index, since trading volume is one of the main criteria to rank the measure's members.

The Ibovespa entered a bull market in January as optimism about the economic outlook for Brazil pushed consumer stocks higher, and sank back into a bear market in June as growth disappointed and inflation topped the upper limit of the government's target.

Rossi Residencial SA (RSID3) climbed 2.1 percent today to 2.98 reais, leading homebuilders higher, as traders pared bets for higher borrowing costs in Brazil following the inflation report. The BM&FBovespa Real Estate Index added 0.5 percent.

Brazil Growth

The Ibovespa, which is still down 12 percent this year, may continue to rise as signs that economic expansion is accelerating in Brazil add momentum to the advance spurred by growth elsewhere in the world, said Luis Gustavo Pereira, the head strategist at Futura Corretora brokerage.

"The external outlook has been the main driver behind the Ibovespa gains in the past months, but economic data in Brazil have also been better," Pereira said in a phone interview from Sao Paulo.

Gross domestic product increased 1.5 percent in the second quarter from the previous three-month period, the national statistics agency said on Aug. 30. Economists surveyed by Bloomberg had forecast an expansion of 0.9 percent.