FiNETIK – Asia and Latin America – Market News Network

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Brazil: The chicken and egg – June 2009 IXE-Banif Market Analysis

The Brazilian stock market brings back to mind the decoupling theory. Foreign investors continue to place their resources in Brazil, in particular in the stock market, which received approximately 40% of the total. The problem is that the good feeling from investors does not reflect in the economic scenario. The GDP being published on June 09 will show a -2,3% drop, with expectations that things will get better only in 4Q09. The data showing the fall in capital goods capex reflect the low expectations for growth. The 80% utilization rate of installed capacity is worrying. This should result in the Brazilian Central Bank cutting the basic rate by at least 75 bps this month. The savings problem seems to be resolved: not to the satisfaction of all, but enough so as not to create political contention in the pre-election year.
The Dollar and the Brazilian currency
The Real appreciated again, closing the month below R$ 2.00/US$. However, the question asked is whether it was the Real that appreciated, or the Dollar that devalued. The prices of many goods suggest that it was the Dollar that depreciated, which will result in a lower cash generation for companies, but better results (base for dividends).
Pension funds; the next buyers
Each time interest rates drop, discussion on pension funds increasing their participation in the stock market becomes prevalent. The reason is simple: low interest rates do not permit them to reach their targets. However, it is important to highlight that pension funds have already increased the participation of equity in their portfolios, from 10% some years ago, to around 30% this year.
Good winds continue to blow
To a lesser degree than in past months, we believe that, in June, the stock market should continue to perform positively, or at least flat MoM. We therefore reduce our exposure to defensive stock and concentrate our portfolio around the main representatives of the Ibovespa. Download: Brazil – Monthly allocation – June 2009 IXE Banif

Outperforming the Ibovespa – Recommended BUY Portfolio (“LONG”)
Stock – Catalysts/Fundamentals
BRTO – The best potential upside in the sector
CCRO – A lower than expected fall in traffic
CSNA – Better performance than its peers, due to having iron ore
ITUB – Multiples lower than its peers
MMXM – MOU with Chinese and the M&A in Corumbá not priced in
PCAR – Lagging, despite good supermarket sales in April
PETR – Should perform in accordance with the Ibovespa
PRGA – With the merger, it presents lower risks than the risks for Sadia
SUZB5 – lagging in relation to its main peers
TCSL – Sale of control brings tag along gains
VALE – Price negotiations should result in a lower than expected price decrease

Source:IXE & Banif, 01.06.2009

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, News, , , , , , , , , , , , ,

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