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Brazil: Scenario Unchanged – July 2010- IXE BANIF – Monthly Analysis

Focus still on the euro zone

For July, we believe the focus will continue to remain mainly on Europe. Banks in the region, particularly in most of the more fragile PIIGS group (Portugal, Italy, Ireland, Greece and Spain), apart from Italy, have recently had limited access to financial markets and remain dependant on local Central Banks to access cash. This situation on its own is uncomfortable, remaining as a source of tension to a market that remains volatile. We expect volatility to continue in July and still do not see any indication of a trend. This is exactly the same view we had for June and, consequently, our suggested portfolio has changed little. We have withdrawn Drogasil, one of the largest winners; reduced the weight of CSN (from 10 to 5%); increased the weight on Hering (from 5 to 10%) and included B2W. With these alterations, we continue using the Ibovespa weights for the oil, mining, banking and transportation industries, remaining overweight for the retail and utility sectors. Brazil – Monthly Allocation – July 2010

Outlook for the euro zone: uncertain and unequal

The G-20 meetings resulted in the decision to halve deficits by 2013 and start decreasing debts from 2016. However, each country is free to decide on the balance between cuts and economic incentives. In Europe, we are facing a catch 22 situation: everyone agrees on the need for cuts, but most people do not want to implement them for fear of an economic slowdown, as perceptions are that growth is more essential. We believe that if only the feared slowdown occurs in Europe it would have little impact on local economic growth, as exports rather than local demand drive economic growth.

Silver linings to the dark clouds

For the rest of the world, we highlight the USA, China and Brazil. Although recently released economic data in the US came slightly below expectations, it is not indicative of a reversal of the trend towards a slow recovery. A conclusion of the details for the reform in the financial system may take place in July, leaving room for welcomed practical measures. In China, we expect growth to continue unchanged, balancing the still difficult situation of the developed world. In Brazil, we expect inflation data for June to be as low as that of May. We also see a transition time for GDP estimates, with a continued gathering of data to support either a revision or confirmation of the current 2H10 and 2011 expectations, which are currently good.

Source: IXE BANIF, 02.07.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, Latin America, Risk Management, , , , , , , , , , ,

Mexico: Economy Continues Slowly but Surely up – June 2010- IXE BANIF – Monthly Analysis

Situation Unchanged: Growth still driven by exports
The Mexican economy has remained unchanged in terms of its main drivers. Growth relies essentially on exports, fueled mostly by a warming US economy, its main importer, but also likely to be helped by a weaker Peso after the strong devaluation in May. Local demand continues to show signs of recovery, but is currently insufficient to support economic growth by itself. This scenario is a continuation of the few past months and we believe it is likely to remain in June.
For the above reasons, we made only minor changes to our suggested portfolio for June. The only modifications were including Cemex, increasing the weight of Geo (from 5 to 10%) and withdrawing Ica and Mexchem.

Exports to the US account for roughly 80% of Mexico’s total exports. This engine, which is driving Mexico’s economic growth, is likely to continue speeding up, as the FED recently revised its estimate for GDP growth upwards. While this dependency on the North American economy might eventually pose a strategic weakness to the Mexican economy, it is a very positive feature for the moment. The eye of the world’s economic storm continues centered in Europe (more specifically in the euro zone), which accounts for only 5% of Mexican exports. Because of their minimal interaction in that region, Mexico’s economy and financial market have not suffered from the latest fears regarding the countries in the euro zone.

After an almost constant appreciation of the Mexican Peso against the USD in 2010 until April, in May the peso was very volatile, with losses of 5.7%. However, the trend toward appreciation will resume for the rest of the year, supported by inflows coming from the US, especially into the fixed income market. We expect the Peso to close at 12.00 versus the USD.  This inflow from the US has played a positive role in the recovery of the Mexican economy, as local activity has already started to pick up although, so far, only in isolated segments. Transport, commerce and media are a few examples of segments that are either strong (in the case of the first two) or never suffered at all. The rest of the internal demand may recover by the second half of the year, as recent labor figures have been positive.

Because of the improved economic activity, the OECD (Organization for Economic Cooperation and Development) has recently increased its forecast for world GDP growth, including a revised 4.5% (from 2.7%) growth for Mexico. We have also revised our own estimate upward to 4.4%, from a previous 4.1%, the same as the median figure expected by market consensus. Inflation in June was down to 3.9%, temporarily helping the course of recovery, as full year inflation expectations remain at 4.9%.

Read full report at Mexico_-_Monthly_Allocation_-_June_2010

Source: IXE Banif, 01.06.2010

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Risk Management, , , , , , , , , , , , ,

Brazil: Volatile Market with no Trend – June 2010- IXE BANIF – Monthly Analysis

Focus spread over euro zone
Last month, we correctly anticipated that the Greek problem would negatively dominate the markets. However, we did not anticipate that fears would spread severely over to other countries, especially the other PIIGS members (Portugal, Italy, Ireland and Spain). After the sharp negative effect on all markets worldwide, we believe that investors continue to be sensitive, with wounds still open and, in the absence of any concrete positive news in June, markets are likely to remain tense, volatile and with no definite short-term trend. This expectation only differs from our view for the previous month in the lack of trend. We chose our suggested portfolio last month to remain defensive, and believe this is also the best choice for June, which is why we have made hardly any modifications. We have only withdrawn Tim, which was the month’s largest winner, and transferred its weight to CSN to keep the weight of the steel industry close to its weight in the Ibovespa. With this move, our portfolio has weights similar of those at the Ibovespa for the oil, mining, banks, steel, transportation and telecom industries, while we keep retail and utilities overweight.

Euro zone pros and cons
For the Euro zone, we highlight some important points. Positives: a) Economic activity in the main countries is not weak; b) Announcement of important measures directed toward stability in Portugal, Spain and Italy. Negatives: a) growth is likely to remain low for at least the next few years; b) risk rating downgrades might occur, particularly for banks, if tension continues at its current level or worsens and c) country debts are likely to stabilize at high levels. From 2008 to 2013, gross debt to GDP ratio will increase in most countries. Based on the assumptions of the European Commission, this ratio for Portugal should go from 66% to 90%, for Spain from 40% to 75%, Ireland from 44% to 93%, Italy from 106% to 118% and Greece from 99% to 135%.

Signs from other regions remain positive
In other regions, the economic trend continues to improve. In the US, the Fed revised its GDP growth estimate upwards to 3.5% for 2010 and we believe recovery is likely to continue slowly but surely. In China, the economy continues strong and on the verge of overheating, although inflation has not surpassed the official 3% limit and we see no reason for any change in course. Finally, in Brazil we also see strong signs of good and unchanged economic activity. At the announcement on June 8 of 1Q GDP we expect a 2.5% non-annualized growth that, if confirmed, would strongly support our estimate of a 7.0% growth for FY2010. On June 9, we anticipate announcement of the IPCA inflation index for May, which we expect to reach 0.45% (for June figures we expect a sharp reduction to around 0.3% that, if confirmed, would increase confidence in the growth trend of the GDP). On the same day, we expect announcement of the official Selic interest rate, when we anticipate another 0.75% hike as part of a measure to avoid the deterioration of the outlook for inflation.

See  full report Brazil_-_Monthly_Allocation_-_June_2010

Source: IXE Banif, 01.06.2010

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

Mexico: 2nd Stage of Economic Recovery Expected – May 2010- IXE-BANIF Monthly Analysis

Recovery currently driven by factors from abroad but local factors might drive further improvements

The Mexican economy continues to recover, driven mainly by industrial and export activities. These sectors benefited from the increased demand from the USA caused by economic recovery.

Mexico – Monthly Allocation – May 2010

Increased exports occurred despite the 5.9% appreciation of the Mexican Peso against the US dollar, to P$12.3/US$. Our expectation is of a continuation to this trend, at least until the end of this year, at which time we forecast a P$12/US$ FX rate: a further 2.5% appreciation.

Local economic activity, when separated from the benefit of exports, continues weak despite a slight recovery. Recently released retail sales data for February, showed a 2.3% YoY growth, while 6 months ago sales data showed a 15% decrease. In addition, automotive sales have also reported growth for the past five consecutive months.

Despite this dependence on exports, especially to the US, we expect a continued improvement to local economic activity and that it should contribute more significantly to GDP growth from 2H10. An expected financial inflow of around US$10 bn for the fixed income market should also fuel the local economy.

Inflation decreased slightly in April, despite the economic recovery, showing that there is room for further economic growth without placing imminent pressure on interest rates. Inflation figures in the first half of April pointed to 4.4% inflation in 2010, while our annual estimate remains at 4.9% and market consensus estimate remains at 5.2%.

First quarter results continue to influence our choice for part of our portfolio, while in other cases the catalysts for specific companies’ drive our choice. For April, we added GAP and Geo, increased the weight for ICA (from 5% to 10%), reduced the weight for Grupo Mexico (from 20% to 15%) and withdrew Ara, Cemex and Femsa. With these changes, we have maintained 80% of the total weight of the previous portfolio.

Source: Banif – Ixe 04.05.2010

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , , , ,

Mexico: Economic recovery slowly materializing – April 2010- IXE-BANIF Monthly Analysis

We are increasingly positive on the Mexican market, although we await further hard data to confirm our expectations. We see many indications of a recovery, which are already reflecting on the local stock market. However, we believe that the continuation of a positive news flow might support further appreciation.

We continue to base our portfolio strategy on specific catalysts for the companies we find attractive. First quarter results have already started to influence some of our choices. For April, we maintained the core of our March portfolio, with weight unchanged for America Movil, Cemex, Genomma LAB, Grupo Mexico, Mexichem and Walmex, which together account for 70% of our portfolio’s total weight. For the remaining 30%, the changes were the inclusion of Femsa, Penoles ICA and Tlevisa, a reduction in weight of ARA and the withdrawal of Autlan, Axtel and GEO.

Our estimated GDP may need another upward revision

Recent statements from the Finance Minister suggest that the Mexican economy might grow 5% in 2010, while the official government estimate remains at 4.2%. If hard data confirm this trend, we might find our own 4.1% growth estimate demanding a further upward revision, although we increased our figure just last month. Recently released statistics, such as the creation of new jobs, the reduction in the rate of unemployment to 5.3% from 5.9%, and industrial production growth, support this economic strength. Expectations are for local consumption to recover, and demand in the US for Mexican products has already begun increasing.

Additionally, data released for February show that vehicle sales grew nearly 100% YoY.

Expectations for interest rate and inflation remain unchanged

Expectations for interest rates, currently at 4.5% pa, continue unchanged, as we continue to foresee increases of 0.25% applied only in September and in October. This is in line with expectations for 2010’s inflation, which we continue to estimate at 4.94%. S

See detailed Detailed Market Analysis Report – April 2010

Source: IXE Banif, 01.04.2010

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Risk Management, , , , , , , , , , , , , , , , ,

Brazil: Up but volatile – March 2010- IXE-BANIF Monthly Analysis

Strong domestic economy

The debate in developed nations is about the health of their public finance and how this will affect growth in the future. In Brazil the concern is the same, but it is at a different stage. While in some developed countries the debt is at its record high and government deficits are reaching worrying levels, in Brazil public accounts indicate deterioration, but for now they are only clouds in the horizon in a scenario of blue skies for this year and the next. The Brazilian economy is overheated especially in some sectors, and given the low level of past investment, inflation has become an issue (to be resolved in the coming months). In this scenario of a fragile world economic recovery, Brazil and China are clearly trying to avoid bubbles as past stimulus measures were successful. We remain bullish about equities in Brazil, particularly domestic plays, despite knowing that the government will take measures to slow the economic growth. With this in mind we foresee Brazilian stocks moving higher, but not without some volatility.

Ibovespa is a bad indicator

Although we set Ibovespa as the benchmark for this suggested Allocation, we acknowledge it may not be the most adequate index to reflect the Brazilian stock market at the moment. Heavyweight Petrobras has been underperforming the Ibovespa since the government announced the intention to make a capital injection last year. It could reach as much as US$50bn and depending on terms dilutive to minority shareholders. We might be close to have this uncertainty ended and Petrobras could finally trade again based on its fundamentals. Vale, another heavyweight, has also dragged the Ibovespa down this year. Despite an expected increase in prices of iron ore, we feel investors are somewhat skeptical that the world recovery is sustainable and therefore volumes could suffer in the medium term. We already heard of investors willing to swap Vale for Petrobras, but this might only start next month.

Interest rate: no changes in Brazil, US or Europe

COPOM in Brazil will take place on March 17, while the FOMC in US on the 16th and the ECB on the 04th. We believe the market is already factoring in a small interest rate hike in the next COPOM meeting. However, we do not expect any of them (ECB, FOMC or COPOM) to change interest rates in March. Inflation has been high lately in Brazil and at this pace it would lead to a level above the Central Bank’s target for the year (4.5% for 2010). Although the government will do anything at hand to delay an upward trend in interest rate, as recently raised the compulsory rate for bank deposits, we believe it cannot avoid raising the SELIC rate to two digits until YE, from the current 8.75%.

Read full report Brazil – Allocation – March 2010

Source: IXE, Banif, 01.03.2010

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

Mexico: Economic recovery, but cautious stance – March 2010- IXE-BANIF Monthly Analysis

Risk aversion at international level should be the tone of the market, as seen last month. Investors should maintain their conservative stance, carefully cherry picking. While Mexico last month presented better than expected GDP figures for 2009 (down 6.5% YoY), inflation keeps trending up and interest rate should move higher, but we do not believe until 2H10 in a prudent and gradual pace.

We set our strategy for the suggested portfolio in March based on specific stock catalysts rather than on sector or top down view. We maintained a high weight on America Movil (AMXL) and GMexico (20% each) and included Autlan and Mexichem. AMXL is still underperforming the IPC and it has been showing a weak performance since it announced the corporate restructuring process involving CGT and TII. We believe the key short term catalyst is the disclosure of details and amount of synergies with this deal. GMexico was strong last month and we expect the uptrend to continue this month. We expect Autlan to present very good sales performance and prices should pick up, given the steel sector recovery worldwide. As for Mexichem, we expect margins to improve as it is entering the chlorine market. See more details of each stock catalyst and risks on pages 02 and 03.

Revising our GDP growth estimate to 4.1%, from 2.9%

After the release of better than expected GDP figures for 2009, despite a contraction of 6.5% YoY, we revised our estimates for 2010 upwards. We now project a GDP growth of 4.1% for Mexico in 2010, versus our previous forecast of 2.9%. We expect improvement from exports, especially services and we highlight the stronger than expected recovery in 4Q09, on a quarterly basis.

Inflation & interest rates to trend up

While annual inflation already suggests it is time to start implementing a more severe monetary policy, we believe the Central Bank will only change interest rates if there are concrete signs that the output gap is closing and idle capacity is close to historical highs. Inflation has been affected by local prices of fuel, electricity and public transportation; hence higher interest rates would not be efficient to bring it down towards the yearend goal. While the market consensus point to a hike already in July/10, we see a more gradual and prudent pace starting at a later time.  We do not anticipate higher interest rates on the meeting on March 19. We believe it should remain at 4.50% this time, but increase to 5.50% until yearend.

Read full report Mexico – Monthly Allocation – March10

Source: IXE, Banif, 01.03.2010

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Risk Management, , , , , , , , , , , ,

Mexico: Eyes on the US economic recovery – February 2010 – IXE Banif – Market Analysis

Positive outlook, but depends on the US recovery

We expect stocks in Mexico to trade on the following drivers: i) US economic recovery, although we understand China is gaining more international importance at global level, but it ought to affect specific stocks (like commodities – i.e. GMexico); ii) Mexican Peso. We see a positive outlook for the currency, given the expected economic recovery this year and the government recent measures to increase its international reserves; iii) Government fiscal situation. On one hand, it is known that Mexico has an imbalance in the fiscal side, given the high dependence from oil revenues. On the other hand, we do not expect another sovereign debt rating downgrade and therefore stocks have already priced in this movement; and iv) Each company particular catalyst.

Link to US (now for the good)

We expect Mexico to confirm a strong retraction of the economy in 2009 (-7% YoY in ’09), due to the world crisis and specially the negative effect on the US economy. We believe the link to US that had a negative effect in Mexico in the past, now it should the opposite effect and help the economy to pick up. Remittances from Mexican workers living in US were affected by higher unemployment in the United States, but they should gradually improve throughout the year. We forecast Mexico to present a GDP growth of 2.9% YoY in 2010. Bad news for Mexican stocks could arise from higher interest rates in US, followed by higher rates in Mexico. We understand this movement might only come by the end of the 3Q10.

More stable Peso

Banxico, the Central Bank in Mexico, recently announced new measures to increase its international reserves, which would allow for a more stable Peso in the future. We currently forecast the Peso at P$12.7/US$, which might have a fine tuning depending on how aggressive Banxico sets its new policy. It is important to note that reserves are at their historical highs, despite one of the worst years in modern history.

4Q09 results to confirm the economic weakness

Most companies will report 2009 results in February. They should reflect the weak economic moment on a YoY basis, but in general some QoQ improvement, excluding seasonal effects. Hence, results should be no catalyst for the stocks, but management discussion and more details of guidance for 2010 will be the focus of investors.

Risks are related to the US economic recovery

We believe that economic data pointing to slower than expected economic recovery in the US is the main risk for the stock market in the short term. This would mean lower Mexican exports, inflow of dollars to the country (tourism and remittances) and eventual higher risk aversion at global level.

For detailed market analysis and report click here Allocation Mexico – February 2010

Source: IXE Banif, 02.02.2010

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Services, Wealth Management, , , , , , , , , , , , ,

Brazil: Samba and 4Q09 results ahead- February 2010 Banif- IXE Market Analysis

Bottom up analysis

February is shorter compared with other months and in Brazil the Carnival this year will take place around mid-February, which will decrease the number of working days. We expect the stock market to trade based on companies’ specific factors, such as disclosure of 4Q09 results and less on economic data.  Hence, we set our portfolio on each particular stock catalyst and less concentrated on Vale and Petrobras.

Interest rate: no changes in Brazil or US

Although inflation figures will still indicate the economy is overheated, needing a more austere monetary policy, there will not be a COPOM meeting in February. In US, the FOMC will also not meet this month. Therefore, there will not be any changes in interest rates this month.

Politics: too early to start the campaign

While we expect presidential candidates (Dilma Rousseff and Jose Serra) to work behind the scenes, we should not see any major political move before Carnival in Brazil. Candidates should resign their current political posts until April’10 and validate their candidacies inside their parties. Only after that, the political debate will effectively start and volatility in the stock market will increase, mainly for those related to regulated sectors and companies controlled by the government. We would expect this volatility to decrease by mid-year, given FIFA’s World Soccer Cup and eventually increase again before elections, which will take place in October.

4Q09 results: weak export figures/favorable domestic sales

In general, we expect weak sales from exporters, on a YoY comparison, given lower volumes and despite some price recovery, they were not fully restored. In the domestic side, sales and margins should have a nice improvement compared with 4Q08. In our suggested portfolio we took into account the expected results, particularly for those to report in February and also compared with the stock performance to access whether they are or not priced in.

Risks come from abroad

Risk aversion has increased at global level and the Brazilian real lost ground in the past days. The devaluation is more connected to the dollar strength rather than specific factors that lead the real to depreciate. In any case, if we continue to see this devaluation in the coming weeks, investors may rearrange their portfolio and buy more exporters (selling consumer staples and homebuilders), given the negative effect the currency devaluation will have in inflation and the ensuing impact in interest rates and the population’s purchasing power.

Read complet report and analysis here Banif-IXE: Allocation Brazil – February 2010

Source: Banif-IXE, 01.02.2010

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

Brazil:Positive Outlook – January 2010 IXE-BANIF Market Analysis

Although subject to volatility, we are more positive about the stock market in January 2010, compared with last month. The news flow will definitely be positive throughout the year, given the easy comparison with 2009 (GDP in 2010 should grow between 5 to 6% YoY). Moreover, it is an election year in Brazil, which normally means more government spending and higher economic activity.

In addition, investments in infra-structure should grow to support events such as World Cup (2014) and Olympic Games (2016), not including the oil industry that is boosting capex in the presalt fields and spending more on gas. Last but not least, we believe the country will continue to attract capital from foreigners and locals, such as pension funds, which should also divert more resources to equities – riskier assets in general – in search for higher returns, as the fixed income (interest rate) should not be enough to meet their actuarial required returns. In summary, before the samba (Carnival) in February, we believe the positive flow and expectation of improvement should drive the market.   Read the full Market Report Brazil – January 2010

Elections + low interest rate + growth = more flow

Elections for president, state governors and Congress will take place in October 2010. On one hand, this means more spending, higher economic activity and ensuing more company profits. On the other hand, we believe this could mean stress to investors from mid-year onward, as the presidential candidate Jose Serra (from the opposition) may change the current economic policies and uncertainties mean more risk. Even to a smaller degree than in other LatAm/EM countries.  Moreover, nothing of significant importance in Congress will be approved from 2Q10 on. Thus, with current visibility, investors should be cautiously optimistic.

Interest rates should move up in 2010 and there is little doubt that it will happen. The debate is about intensity and timing. In any scenario, it should remain low compared with historical levels and continue to stimulate local investors to take more risks (i.e. equities). Bear in mind that most debts in Brazil are based on fixed rates and a more restrictive monetary policy does not mean less available income in the short term.

We believe the news flow will be positive in most economies and the easy comparison should be a good support for equities. Brazil is and should continue to be a hot spot for investments, given the size of the domestic market and events to take place in 2014 (FIFA’s World Cup).

Risk aversion could continue

In the past days of the year, risk aversion increased at global level, triggered by Dubai’s debt negotiation. Later on, several countries had their credit ratings downgraded. The euro lost ground against the dollar, as well as EM currencies. It is an adjustment of expectations regarding fiscal imbalances and a higher focus on risk management. We would not be surprised if this movement continues. We are cautiously optimistic looking ahead.

Source: IXE Banif, 04.01.2010

Filed under: Banking, BM&FBOVESPA, Brazil, Exchanges, Latin America, Risk Management, , , , , , , , , , , , ,

Mexico:After the Storm – January 2010 IXE-BANIF Market Analysis

We believe stock selection will be key in January and throughout 2010. The stock market partial rebound in 2009, reflecting better than expected economic figures, is over and although we expect another wave of optimism, we just cannot ignore risks. We focused our strategy for the first month of the year based on each stock catalysts rather than sector or top down approach (see pages 02 to 04 for stock catalysts). Read full Market Analysia Mexico – January 2010

On a broad view, after the peak of the crisis and stock market partial rebound last year, we believe investors will continue searching for investment opportunities in emerging markets. More recently the tone has changed to risk aversion, given Dubai’s debt negotiation process and following debt downgrades from Greece to Mexico. Thus, we expect stocks to perform based on individual investment thesis and investors to also focus on risk management in the short term. We are bullish for the year 2010, given: (i) the easy comparison with 2009. Hence the news flow should be positive; (ii) Positive macroeconomic environment. After an expected GDP contraction of 7.1% in 2009, we expect growth of 2.9% YoY in 2010. We do not forecast a strong hike in interest rates this year. We expect rates to move from 4.5% to 5% until yearend, starting only in 2H10, versus consensus of a hike already in April. We forecast inflation at 4.85%, below consensus of 5% and relatively stable FX (below the MX $13/USD); (iii) No major politics disruption – presidential election will only take place by 2012. As for politics, reforms could be an upside; (iv) the debt downgrade, swine flu, strong contraction from remittances, oil prices at USD40 at the beginning of the year, what else could be wrong in 2009? We believe 2010 starts in a positive mood, although we do not foresee strong Christmas sales in 2009 to act as a catalyst in January; and (v) despite the turmoil Mexico maintained its credibility towards economic stability and its international reserves should end 2010 above USD 92bn, while 2009 above 2008’s level. This positive outlook should call attention from LT investors to Mexico.

Linked to US for the bad and for the good

While many turned their heads to investing in Mexico during the crisis, given its proximity and link to the US economy, we might see the opposite in the coming months. Some could argue, why invest in Mexico if US should also display improvement? The answer lies on specific stock details – not all will benefit with the same intensity from the recovery in either US or Mexico. However, it is easier to find an investment angle not covered in Mexico, compared with the US stocks. Moreover, the country was severely penalized during the crisis and now has plenty of room to just recover and improve.

Risk: Volatility before rally

We would not be surprised by some volatility in the middle of this recovery. Although this is a suggested portfolio for Jan/10, we recommend investors to look at the medium term, as companies will be more profitable in 2010 and stock prices will reflect this improvement.

Source: IXE-BANIF, 04.01.2010

Filed under: BMV - Mexico, Exchanges, Mexico, Risk Management, Wealth Management, , , , , , , , , , , ,

Mexico: The bad news is finally out – December 2009 IXE Banif Market Analysis

Fitch has finally downgraded Mexican debt. However, as always, there is good news with the bad, for they say that the outlook is now stable. In addition, Congress has finally approved the tax increase, which should result in an improvement in government revenues, although the decision was not sufficient to avoid the downgrade. S&P has still to give its verdict on the country’s outlook. Expectations are that they will avoid downgrade and, as Fitch did, maintain a stable outlook, but with a higher notch.”

Mexico – Monthly Allocation – December 2009

The economic outlook seems to be improving. Although still negative, indicators are above expectations. GDP dropped 6.2% in 3Q09, which compares to the market’s estimated drop of 6.8%. For 2010, investors expect a turn around, estimating a 3.1% growth. Much still remains based on an improvement in the USA. Approximately 27% of the country’s economy depends on its neighbor.

Inflation watched closely

Inflation has not been a concern up to now, continuing below the 4% level. However, expectations are that the beginning of the year will show it moving above this level, increasing concerns that the Central Bank will start moving basic rates up. Expectations are that the beginning of an upward trend in rates will only start in September 2010. Investors will be on the lookout for the Mexican’s Central Bank estimate, scheduled for release during the first week of December.

Other data investors are going to be paying a lot of attention to during the next couple of weeks are on the US, especially Black Friday sales that will give an indication of how good (or bad) Christmas sales will probably be. An improvement should indicate an increase in remittances to Mexico, improving the Mexican economy.

No real concern with the change to Central Bank

The change in the President of the Central Bank is no real concern. Although doing a good job, the leaving President was eternally in dispute with President Calderon. Replacing him is Mr. Carstens, who is the Secretary of Finance, and who has good international exposure. The question that arises is who is going to replace him as Finance Secretary.

December is the month with the highest sales, due to Christmas. Thus, we are basing our portfolio on the stocks of companies that will benefit from this. We are not recommending any shorts this month.

Outperforming the IPyC – Recommended BUY Portfolio (“LONG”)

Stock – Catalysts/Fundamentals

AMXL – excellent results from the launching of promotions for post paid subscribers

AXTEL – possible change in foreign shareholder legislation

CEMEX – should successfully place convertible bonds

FEMSAUBD – reducing due to uncertainties coming from rumors

GAP – December traffic should be positive

GEOB – trading at attractive valuations

GMEXICOB – defensive play on copper price increases

ICA – expectations that it will win the tenders for more public projects

Peñoles – precious metal price seasonal increase

Simec – better outlook on USA auto sales in 2010

Televisa – looking for a JV to participate in wireless spectrum auctions

URBI – should do well on Moody’s and S&P’s upgrade and on attractive valulations

WALMEXV – strongest month for retailers with 4Q representing 30% of sales.

Source: IXE Banif, 01.12.2009

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , , , ,

Brazil:Where one goes all follow December 2009 IXE-BANIF Market Analysis

We are now in the last month of the year and, after a doubtful start, in the midst of the crisis hurricane, it should end on a positive note, with a more than 70% appreciation. Therefore, December should not be a month of risk. Investors will attempt to guarantee the gains so far realized.

Brazil – Monthly Allocation – December 2009 Report

A new scare marked the end of November. However, this only gave investors a chance to take a breather. Dubai’s debts do not seem to cause much of a worry. The main creditor is the UK, with the exposure of other regions, including the USA, being less than 15%.

Economic data releases few and far between this month

Little economic data will come out this month, both in the USA and Brazil. In Brazil, investors look for a strong recovery in GDP for 3Q09, with release of figures expected for December 10 and with the Copom minutes being released on the 17. In the USA, investors expect the release of sales figures for “Black Friday”, that should indicate the strength (or weakness) of Christmas Sales. In addition, we will have one more FOMC meeting on the 16 and 3Q09 GDP on the 22.

The growth of the US economy still depends very much on the resources injected into it by the Federal Government. Inflation is not a problem, and should not be for some months. Therefore, the FED should maintain interest rates at their present level, at least for the next six months.

Things seem to be getting better. The Real Estate sector, although still weak, shows various signs of recovery. The truth is that the panic generated by Dubai is from this sector. On the other hand, as it is a concentrated crisis, it is hardly likely to spread to other regions.

The pre-salt area becoming a reality

The pre-salt area still awaits the approval of Law 9541/09, but Petrobras is already taking steps to prepare for its implementation. One step is the creation of a Minorities Commission to follow the development of the “transfer of rights with compensation” process through which the Government capitalizes Petrobras using oil reserves. Another is the acceptance of Federal Public Debt bonds by minority shareholders’ for the proposed Petrobras capital increase.

Performing the same as the Ibovespa guarantees the year’s result

This month, we opted to have a portfolio that balances well with the Ibovespa as we believe that the result for the year is a given and thus expect the last month of 2009 to be flat. Therefore, we aimed at maintaining our portfolio gains in 2009 above 70%.

Outperforming the Ibovespa – Recommended Portfolio (Long)

Share – Catalysts/Fundamentals

BPNM4 – Rumors of the possible sale increase in personal credit during Christmas

BRTO4 – Most discounted share in the Oi Group

BTOW3 – Internet Christmas sales should grow strongly

CSNA3 – Sales to the domestic market continue to increase

ELPL6 – 1Q10 dividend should yield at least 8%

EQTL3 – A stock with low liquidity that should be less volatile

ITUB4 – Continued increase in credit to all sectors

KLBN4 – Cardboard price increases should result in a strong 4Q09

MMXM3 – Sale of a stake in the company should be above investor expectations

PCAR5 – Food and non-food Christmas sales

PETR4 – increase in daily volume

SUZB5 –Cardboard and pulp price increases

TLPP4 – Defensive stock that should announce dividend payout in December

VALE5 – Price negotiations start in December with expectations of a 10% increase

Short suggestion for December

NETC4 – incrase in competition with the sale of GVT to Vivendi

Source: IXE – BANIF, 01.12.2009

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

Mexico: Up on rating maintenance – November 2009 IXE-Banif Market Analysis

The Mexican economy seems to be finally leaving behind the negative catalysts that were driving it. Growths shown during the last quarter are mostly spectacular, although it is important to say that this is partially a consequence of the easy comparisons generated by the weak performance of the past. Still, numbers show a recovery and expectations are that the current quarter will be even stronger. Mexico – Monthly Allocation – November 2009

One of the main downward drivers of the Mexican stock market was the expectation that rating agencies would downgrade the country on the back of the strong decrease in public revenues. The increase in taxes, still waiting approval, should solve this issue satisfactorily, although not being the most appropriate solution considering domestic economic activity. Increasing taxes is never a popular measure, but to maintain ratings unaltered this sacrifice is valid. Thus, as the Mexican market strongly lags the Brazilian, we expect that the approval of the tax reform and consequent maintenance of the country’s rating should result in an upward movement for the Mexican Stock Exchange BMV.

The main problem in the short-term seems to be inflation. Although it has remained at a low level, and in the range established as acceptable by the Central bank, with the freezing of gasoline prices and the reduction of other energy prices, the increase in taxes will likely signify an increase from the current low level of inflation. However, the Central Bank has show clear signs that it will not worry about this for the time being and that its main concern is the reactivation of economic activity.

US economy driver of the markets
The 3Q09 GDP of the USA came in as an extremely positive surprise at 3.5%, above the market consensus of a 3.2% growth and just after some respected economists had alerted investors to the possibility of it being even lower. The trend of the American economy becomes more and more important to watch in determining investment opportunities in Mexico. Not only does the country’s economy base itself on supplying mainly the US, but it also depends on remittances from Mexican workers in the USA to Mexico. In September, there was a 17.56% contraction in remittance, much worse than the estimated 13%. Thus, numbers of jobs eliminated in the Mexican society is a number to follow carefully. Unemployment rate reached nearly 10%, but if we look at the Hispanic community, this number increases to above 12%.

For November, we will continue betting pretty much on the same sectors as before. That is, companies related to the domestic economy. Our preferences continue to be the homebuilding and infrastructure segments, as well as the retail sector that will probably suffer less from the imminent tax increases awaiting approval by Congress.

Outperforming the IPyC – (“LONG”)
Stock – Catalysts/Fundamentals
AMXL – diversification and growth in penetration rate leading to higher ARPU
CEMEX – Underperforming peers and trading at attractive valuations
FEMSAUBD – solid growth in Sales and EBITDA
GAP – expectations of positive numbers during the last months of the year
GEOB – beginning of operations in the USA and Brazil
GMEXICOB – reducing exposure on the delay of the decision on Asarco
ICA – important projects in 4Q09, specifically in November
Peñoles – gold and silver consumption increase in India and China
Televisa – merging cable service and forming largest operator in Mexico
URBI – trading at attractive valuations
WALMEXV – improved sales during the Christmas season and not affected by tax increase

Short suggestion for October
Megacable – valuations are expensive
SARE – poor performance leads to bankruptcy

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , ,

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, , , , , , , , , , , ,