Brazil education stocks drop on subsidy cut talk

Bloomberg

Brazilian education and construction companies dropped on speculation the administration of interim President Michel Temer will seek to cut the social programs they depend on for revenue.
Kroton Educacional SA and Estacio Participacoes SA, the country’s two biggest for-profit university operators, were among the worst performers on the Ibovespa stock index after Folha de Sao Paulo newspaper reported that the government program to help pay for technical courses and college degrees may end as Brazil seeks to shore up its budget.
“Every time the government and the market think about what needs to be done in a fiscal adjustment, the first thing that comes to mind are the social programs implemented by” the previous governments, said Rafael Ohmachi, an analyst at brokerage Guide Investimentos in Sao Paulo. “These shares should stay under pressure while the new government’s measures for a fiscal adjustment are announced.”
Construction company MRV Engenharia e Participacoes SA, which focuses on building homes and apartments for lower-income consumers under the “My Home, My Life” program, also dropped after reports that the government may scale back support.
The education and housing programs had been championed by former President Luiz Inacio Lula da Silva and his successor, Dilma Rousseff, who was forced to step down this month to face an impeachment trial in the senate. Temer has pledged to shore up the country’s finances after a ballooning deficit and shrinking economy resulted in the loss of Brazil’s investment-grade rating.
Kroton dropped 2.1 percent to a two-month low of 11.13 reais at 3:15 p.m. in Sao Paulo, while Estacio fell 3 percent to 10.88 reais. MRV fell 4.9 percent to 10.18 reais, its lowest level in three months.