It seems that the decline of Brazil’s rating note by the rating agencies, Standard and Poor’s, Fitch, values the shares, in the stock market. Bovespa never achieved such a high valuation. Since the beginning of the year, the indexes rise expressively, beating record highs.
Fitch agency cut Brazil’s sovereign debt rating again Friday, sending it deeper into junk status after the government gave up on attempts to get approval for pension reforms.
The long-term foreign currency issuer default rating was cut below investment grade, from BB to -BB.
“Brazil’s downgrade reflects its persistent and large fiscal deficits, a high and growing government debt burden and the failure to legislate reforms that would improve the structural performance of public finances,” Fitch said in a statement.
Ibovespa is one of the most powerful indices in South America. It represents about 70% of the overall market capitalization on the BM&F Bovespa, which is also one of the biggest stock exchanges in the region.
Ibovespa rose 0.74%, to 86,686.44 points – a new record closing level -, after Banco do Brasil posted better-than-expected results for the fourth quarter and boosted other financial sector shares, which have significant weight in the index.
Earlier in the day, the index rose above 1%, with a peak of 87,759.04 points, but the sharp increase lured profit-taking.
“There is a strong stock market expectation, the stock markets in the United States have been positive, which has encouraged a further increase. Earnings have also helped, especially for banks,” said H.Commcor’s operations desk manager, Ari Santos.
Banco do Brasil’s shares (+3.11%) were among the most traded and recorded Ibovespa’s highest gains after the bank posted adjusted net income of R$ 3.188 billion in the fourth quarter of 2017, 82.5% above the profit recorded in the same period of 2016 and considerably higher than estimates (R$ 2.791 billion). Other bank stocks tracked, like those of Itaú Unibanco (+0.55%), although it lost breath during the trading session.
Petrobras shares (+2.41%) also performed well, supported by higher oil prices abroad, while Vale (+1.94%) tracked the rise in iron ore prices after a holiday in China.
For the coming days, the bet is on maintaining the good moment for the Ibovespa in case there are no external shocks and amid signs that the domestic economy is recovering. Still, the government’s efforts to approve measures after the pension reform has been aborted should be noted.
“Now the government is looking for political support to accelerate the package of 15 measures, which are being targeted to fill the agenda until the elections. Of course, the Temer government must once again face resistance in some of these bets,” said Magliano Corretora’s analysts in a report.