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Brazil: Catching its Breath – November 2009 IXE-Banif Market Analysis

Investors have at last decided to look around them. The strong rally of the markets in 2009 seems to have ended, or at least to have entered into a short-term profit-taking period, while waiting for data that justifies a new advance to 100 k points. The conclusion that the recent rally was stronger than the economic numbers justify seems to have given the tone to the last few trading days in October and should continue so into the first few days of November.  Download: Brazil – Monthly Allocation – November 2009

Fear for the future of the US economy is prevalent both there and here: and not without cause. The American economy remains the world’s motor and, if it reduces speed, the rest of the world’s economies will follow. The US recession ended with a GDP growth of 3.5% in 3Q09, above the most optimistic forecasts. The fear now is that the Government is removing the help that allowed this strong growth and that the economy does not have the strength to continue to expand without it and may even contract in the next quarters. Concerns about inflation also increase, which will certainly lead to interest rates going up, with a consequent reduction in the capital invested in emerging countries.

In Brazil, the elections begin to call the attention of investors. The movements intended to strengthen candidates do not always produce the results expected. Alliances begin forming but, for now, we do not even know who will be the candidates.


Waiting would have given better results
Worrying about the cost to Brazil of an expensive Real, the Government attempted to halt its appreciation. If it had waited a few more days, the market would have taken care of the problem itself. The strong sales of the last few days, and the return of these resources to their country of origin, led to the depreciation of the Real that the 2% tax on the entrance of capital did not manage to achieve. Some believe that the implementation of the IOF is an attempt to garner income and balance the Government’s accounts. If this is so, the new tax will remain in place for some time.

Shares from the domestic market should outperform
With the end of reduced IPI on the sale of vehicles, with it remaining only on the sale of white line products, we believe that the steel market has leveled and focus now shifts to the mining market. Therefore, this month we opt for a greater concentration of companies that focus on the mining sector, as well as continuing to prefer stocks in companies linked to the domestic economy.

Outperforming the Ibovespa – Recommended Portfolio (“LONG”)
Stock – Catalyst/fundamental
BRTP4 – greatest potential to appreciate
CTAX3 – good results in the 3Q09 lead to positive expectation in coming quarters
CSNA3 – increase in the sale of minerals from Namisa to China
EQTL3 – pure distributor that should have a dividend yield of at least 10%
ITUB4 – expected continuity of good results posted in the 3Q09
JHSF3 – one of the cheapest plays in the sector
LIGT3 – discounted in relation to its peers
LAME4 – increase in sales with the arrival of Christmas
MMXM3 – beginning of iron ore price negotiations
PCAR5 – of the retailers, it benefits the most from the maintenance of the IPI
PETR4 – pre-salt regulations
VALE5 – increase in fines and pellets sales


Short suggestion for November
BRML3 – price pressure due to sale of important stake
HYPE3 – price pressure due to sale of important stake

Source: IXE-BANIF, 03.11.2009

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

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