Brazilian stocks gain on recovery optimism

Brazilian stocks fell on concern that the world’s largest economy will take a protectionist turn, depressing global trade, after Donald Trump was elected president. Companies with ties to Mexico took the biggest hits.

Autoparts maker Tupy SA, which has a key plant in Mexico and gets a fifth of its revenue from the country, tumbled 7 percent, the most since January. Petrochemicals maker Braskem SA, which co-owns a $5.2 billion ethylene facility in Mexico, also dropped. Steelmakers and mining companies that could benefit from Trump’s pledge to spend on infrastructure improvements were the country’s biggest gainers.

Among emerging markets, Brazil is in a unique position in that it doesn’t have the same free-trade agreements that benefited economies including Mexico, and so Trump’s vows to renegotiate deals would have a muted impact on shipments to the U.S. Even so, Brazil could face a ripple effect that threatens to upset its rebound from a two-year recession. China and Mexico may face the biggest shocks should Trump follow through with his anti-trade rhetoric, and both countries play key roles in Brazilian business plans.

“The world is much more inter-dependent now, and problems that our neighbors and trading partners face can become our problems, too,” said Alexandre Espirito Santo, an economist at Orama Investimentos in Rio de Janeiro. “The scenario will get very tricky, making investment decisions harder.”

Iron-ore miner Vale SA, as well as steelmakers Gerdau SA and Cia. Siderurgica Nacional SA, gained Wednesday. Trump has said he will boost taxes on Chinese imports, which could make Brazilian metal producers more competitive in the U.S. Gerdau has major steel plants in North America.

For-profit university operators Kroton Educacional SA and Estacio Participacoes SA were among the biggest losers Wednesday, falling more than 2 percent, and their declines had little to do with the global rout. The lower house on Tuesday night passed a plan that investors fear will lower the companies’ revenue from student aid programs.

The Ibovespa dropped 1.4 percent to 63,258.27 in Sao Paulo. Lender Itau Unibanco Holding SA contributed the most to the decline, losing 3.2 percent. State run oil producer Petroleo Brasileiro SA lost 2.3 percent; Braskem slipped 1.3 percent. Gerdau surged 6.4 percent and Vale was up 1.9 percent. Pulp producer Fibria Celulose SA gained 4 percent as the real weakened the most in almost two months. The Ibovespa is trading at 13.8 times estimated earnings, which is 24 percent above its five-year average.

Brazilian stocks have rallied 80 percent in dollar terms this year, the best performance in the world, on optimism that President Michel Temer, who took over in May when Dilma Rousseff was impeached, can win back investor confidence, curb a budget deficit and restore growth. That helped the benchmark index weather the rout following Trump’s electoral upset.

“Because of the government’s reforms, Brazil’s prospects are more encouraging than those of its peers,” said Renato Nobile, the chief executive officer at Bullmark Financial Group in Brasilia, which has 1.2 billion reais in assets under management. “Everybody is now assessing how much the U.S. election can affect the hopes for a recovery.”

Carlos Monteiro is a Brazilian citizen, graduated in Business Administration by the Catholic University of São Paulo. He lives in Odense, Denmark with his Danish Wife, Cathrine, and their half Danish /Brazilian daughter Ines Marie. You are very welcome to be in contact him at any time.
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