Brazil's 2009 stock market rally, fueled by the first inflow of foreign funds since May, is fizzling on concern Latin America's biggest economy is headed for a recession, Bloomberg reported.
The Bovespa index surged 13 percent in the first three trading days of the year, the best start since 1992, as foreigners bought 961.1 million reais ($402 million) more than they sold, data compiled by the Sao Paulo stock exchange show. The measure has slumped 9.1 percent since, as Barclays Plc and JPMorgan Chase & Co. joined Morgan Stanley in lowering economic growth forecasts.
"I'd view the rally as a head fake," said Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati, which manages about $21 billion and as been reducing holdings in emerging markets such as Brazil. "There's a lot of macro things people aren't taking into account."
The Bovespa, poised for its worst week since November, climbed today after wholesale inflation fell more than economists estimated, spurring speculation the central bank may make deeper interest-rate cuts to boost the economy. The index tumbled 4 percent yesterday to its lowest level this year as UBS AG reduced earnings estimates for small and medium-sized Brazilian banks and Barclays said Brazil's gross domestic product may expand just 0.9 percent in 2009 after surging almost 7 percent in the third quarter.
The Bovespa increased 1.9 percent to 38,718.47 at 2:24 p.m. New York time. The index has retreated 6.4 percent for the week.