FiNETIK – Asia and Latin America – Market News Network

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Brazil – Current Scenario Keeps the Market on Tenterhooks– Monthly Allocation- May 2011

Internationally, Advances Should Continue Slowly but Surely
We foresee a relatively neutral international scenario for May, but the outlook for the global economy seems unlikely to improve in the upcoming weeks, and several issues might continue to raise investors´ concern. In the US, the government’s debt ceiling issue is unlikely to cause any market disruptions, but it could generate some nervousness. Also, although economic activity continues to grow, the increase of the jobless claims in the last two months could cast some doubts on consumption’s short term outlook. Meanwhile, in the Euro Zone, Spain has continued to manage to sell debt as scheduled, and talks between Portugal and the EU on the financial assistance package have progressed. Nevertheless, the fact that Portugal will hold general elections in June and Finland’s population have shown growing resistance to EU’s current assistance framework indicates that the road to the package is likely to be bumpy, generating some noise and fear.


1Q Results Season to Drive the Market
In terms of the domestic scenario in Brazil, an uncertainty mood is likely to continue concerning the Federal Government fight to curb inflation. The government has continued to try to fight inflation without jeopardizing economic growth, which generates many doubts on the economic outlook for 2011 and 2012. On the other hand, the Central Bank has, at least, acknowledged that the monetary tightening cycle will have to be extended, which is encouraging. In all, the local macro scenario tends to generate less anxiety, because market players will live for some time with the prolonged gradual tightening of the monetary policy, the slow appreciation of the Real, some fiscal tightening, and remaining doubts on whether the government’s strategy will work.

The first half of May will concentrate the majority of the 1Q season reports. Given the aforementioned scenario, where nothing impacting is expected, the market should be driven this month by corporate results and news. With most of the 1Q macroeconomic figures already out, we do not believe in unexpected results except for specific exceptions.

Having this calmer outlook for the local economy in mind and with the negative bias from the still unabated inflation, we continue believing in a volatile stock market for May with a slightly negative trend. Given this, we have changed very little our previous portfolio for May. We included Raia and Telesp, with 5% weight each. We also withdrew HRT from the list, due to the potential overhang with the end of the lock up agreement between the pre IPO shareholders. With these changes, we increased the total number of companies by one so we re-balanced the lower weights to 5%, from 6%.

Source:BANIF, 02.05.2011

Filed under: Banking, Brazil, Latin America, News, Risk Management, Services, , , , , , , , ,

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