A plunge in the Ibovespa from this year’s peak put the equity gauge on the brink of a bear market amid forecasts Latin America’s largest economy is headed toward the longest recession since the 1930s.
The stock benchmark extended its slump since May 5 to almost 20 percent as lender Itau Unibanco Holding SA and oil producer Petroleo Brasileiro SA tumbled. Traders have been pulling money from Brazil on concern President Dilma Rousseff will struggle to revive the economy, curb inflation and narrow the budget deficit amid a political crisis. The real posted the second-biggest decline among 16 global major currencies.
Investors are turning bearish as the central bank has signaled it will hold interest rates at a nine-year high even in the face of a recession. Rising borrowing costs are slowing down consumer purchases, pushing Rousseff’s approval rating to record lows and dimming prospects for corporate earnings. To make matters worse, emerging markets have joined a selloff in commodities since China’s yuan devaluation last week.