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Brazil: Clouds still surround the US economy – October 2010- IXE BANIF – Monthly Analysis

Fear now is of deflation in the US

The US economy has shown signs of weakness since the beginning of 2H10 and now indications of a possible deflation have surfaced. This new fear is like a two edged sword. On one hand, the imminent risk of deflation is a deterioration from previous conditions but on the other, it might force the Central Bank to accelerate its actions to stimulate the economy. In our opinion, the market would see faster action as positive in the short term. In this respect, it is worth mentioning that the first set of economic indicators released in October displayed neutral results.

In the absence of strong market drivers worldwide in October, and with a weak local agenda (the most important factor is the Presidential elections), we believe the trend is likely to be neutral for the month, although with volatility. We foresaw the same scenario for September, but the 6.6% appreciation of the Ibovespa, caused by the easing of economic concerns, surprised us.

In Europe, we have clouds in Ireland after the Irish Central Bank announced that Allied Irish Bank would need around €30bn of extra capital by year-end. However, in our view, if problems in the region remain contained to Greece and Ireland, Europe should not be a concern and ought to continue its slow recovery. In Asia, we expect neutral events, with no problems arising in China.

Brazil – Monthly Allocation – October 2010

In October, with no major operation scheduled, we believe the market will follow the economic and political news more closely. This month, we have made substantial changes in our portfolio, substituting companies having 35% of our previous total weight. The new names are PDG Realty (with a 10% weight), OGX, CSN and Itaú (with 5% each). We have also increased the weights of Telesp (from 5 to 10%) and Vale (from 15 to 20%).

Outlook for Brazil continues Bright

In Brazil, we expect the current strong economic demand to continue and believe in the likelihood of an upward revision for 2011 GDP growth forecasts, currently at 4.5% (Focus poll). For 2010, growth is relatively undisputed to be in the 7.5-8% range.

In our opinion, the political dispute in the presidential campaign can bring about one of three scenarios to affect the stock market: 1) Labor’s party, Dilma, wins in the first round; 2) a second round takes place, with a continuation of Dilma’s current advantage or 3) Dilma loses ground in a possible second round. We believe that the first and second scenarios are likely to have no effect on the market, as we have seen no response to Dilma’s advantage so far. If the third scenario takes place, it is likely to bring more volatility to the market. Investors may view this as positive but, as they note that the difference between the two candidates is in the details instead of being radical, the event should have limited positive impact. In overall terms, we think a second round would be beneficial, as it would force a greater balance between the country’s political forces.

Source: IXE-BANIF, 01.10.2010

Filed under: BM&FBOVESPA, Brazil, Exchanges, 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, , , , , , , , , , , ,

Brazil: Softly, softly, the best approach – October 2009 IXE-Banif Market Analysis

The continued rally of the markets is both surprising and alarming. It assumes a recovery of the economy that the indicators do not confirm. Consequently, there is a fear of profit taking, and that this will be stronger than originally estimated. The uncertainty of when it will take place, if in October or only next year, is the dilemma facing investors.

Download: Brazil – Monthly allocation – October 2009
Market liquidity continues to be excessive. We believe that it is this large volume of resources and not the feeling that the worst is over, which is boosting markets. While the flow of resources into the real economy does not stop, a stronger profit taking becomes improbable. In Brazil, the government has started taking steps to reduce the flow. It has modified the bases for reserve requirements slightly and is gradually increasing the IPI to reduce the benefit from buying vehicles and white line goods.

In Brazil, from here onwards, the elections start to gain an increasing importance. October starts with the President of the Central Bank siding with the largest national party, PMDB. All he does not say is if he will be a candidate, leaving the Central Bank in March, or if he leaves, as will President Lula, only at the end of his mandate that goes to December 31, 2010.
We must not forget the pre-salt regulations currently under discussion at Congress. The tendency is for this to benefit the national market, which may or may not result in Brazil gaining more resources.

The dreamed for investment grade
The last classification agency approval needed to increase Brazil’s investment grade has finally done so: Moody’s has also classified Brazil at first-degree investment grade. This should bring resources to the Stock Market from foreign investors that can only invest in countries that have the seal given by the three main agencies. However, this should not happen in the short term, seeing as these new potential investors must study opportunities and compare them to others in the world.

Shares from the domestic economy should outperform
The certainty that at some point the Brazilian market should cash in the substantial profits gained this year causes us to suggest a continued conservative stance for our October portfolio. After all, the Ibovespa has gained 64% this year. We continue to prefer names linked to the development of the internal economy and good dividend payers. However, we have also kept our bets on the mining and steel industry due to potential gains, mainly from better sales volumes.

Outperforming the Ibovespa
Share – Catalyst/Fundamental

BRTP4 – highest upside potential in the sector
CPLE6 – Defensive in a month where we expect an increase in volatility
ITUB4 – 3Q09 result should show synergy gains
JBSS3 –demand/price recovery in the, private placement e M&A
LAME4 – Sales on ‘Children’s Day’ and during the Christmas period
LIGT3 – Discounted in relation to its peers
MMXM3 – Expectation Wuhun Iron Steel will confirm its offer
MRFG3 – demand/price recovery; M&A and distribution agreements
PCAR5 – Good representative of the internal market, operating in retail and food
TLPP4 – Announcement in October o a high dividend yield for the year 2009
USIM5 – 3Q09 result should report margin expansion
VALE5 – Increased sales of ore and pellets to the European market

Source: Banif-IXE, 01.10.2009

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

Brazil: No short-term triggers – August 2009 IXE-Banif Market Analysis

We do not see any short-term triggers for the Ibovespa in August. The Brazilian Central Bank should keep the basic interest rates at 8.75% to the end of this year since Copom considers that the current level is consistent not only with the path that inflation should take in 2009 and 2010, but also with the recovery of economic activity. Macroeconomic indicators (employment, industrial production, etc) that showed a slight improvement in 2Q09 should continue their gradual upward trend, but at lower levels than before the start of the financial crisis.

Brazil – Monthly allocation – August 2009

The Government has used fiscal instruments in its economic policies to increase consumer confidence after the crisis. These include the reduction of the IPI (tax) on the automobile, electronics and capital goods industries. Due to the likely extension of these measures, we believe that the sectors most linked to consumption could benefit in coming months.

If, when released, economic data and company 2Q09 results confirm that the crisis has hit rock bottom, or start pointing to a small recovery, they may help the performance of the Ibovespa.
On the foreign front, although US GDP, published last Friday, July 31, came in better than expected at -1%, rather than at market expectation of -1.5%, its composition does not show any consistent or significant improvement. In particular, data on US family consumption worsened again, after a slight improvement in 1Q09. Therefore, we believe the foreign front will continue uncertain.

Concentrated Ibovespa
For the Ibovespa to go up by the end of this year, mining, steel and financial institutions would need to rally, as they carry a heavy weight in the index Petrobras and Vale do Rio Doce alone account for approximately 33% of the Ibovespa. We forecasted the Ibovespa at 48,600 points by December 2009, which leads us to believe that some profit taking will take place by YE. Because of the above points, we reduced the weight of commodity shares in our August portfolio and selected companies that we believe will report good 2Q09 results and dividends.
Outperforming the Ibovespa
Stock – Catalyst/Fundamentals
AMBV4 – Solid market share and volumes
BRTP4 – expectation of reporting a good 2Q09
CTAX4– excellent 2Q09
CPLE6 – discounted shares
ELPL6 – dividends regarding 1H09
GOLL4 – good 2Q09 could reinforce investor confidence
ITUB4 – 2Q09 forecast
JBSS3 – good 2Q09 and gradual recovery
MMXM3 – should be the target of acquisition
PCAR4 – resilience of the food segment
PETR4 – reducing weight in the portfolio
USIM5 – recovery of demand and price in the domestic market
VALE5 – reducing weight in the portfolio

Source: Banif – IXE, 03.08.2009

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

China and Latin America; the new conquistadors – Update 1

When Hugo Chávez first met Barack Obama at the Summit of the Americas in April, the Venezuelan leader could not resist pressing one of his favourite tracts into the US president’s hands. Eduardo Galeano’s Open Veins of Latin America: Five Centuries of the Pillage of a Continent, a staple of student radical literature, tells the story of a continent that has long seen itself as the victim of foreign exploitation. Mr Chávez, though, may have given the book to the wrong leader. It should have been given to the Chinese.

China’s links to the region are deepening fast. Indeed, if the mooted $15bn bid for Repsol YPF’s Argentine oil unit by China’s state-owned energy companies CNOOC and CNPC comes off, South America will also be the recipient of China’s largest outward investment to date. Bilateral trade with the region has risen 10-fold since 2000, reaching $143bn last year. China is now Brazil’s largest trade partner. It takes almost three-quarters of the iron ore produced by Vale, the world’s largest iron ore company. It has been a bigger buyer of Chilean copper than the US, and it is already a major investor in Venezuelan oil – even as Caracas has nationalised several western concerns.

FiNETIK recommends:

    Beijing formalised this heightened level of Latin attention last November. In a policy statement, it talked amicably of “win-win” strategies, and mutual political respect. Deeds followed words, with a renminbi currency swap extended to Argentina worth $10bn, a $1bn pledge to invest in an Ecuadorean hydroelectric plant and, in the Caribbean, loan packages to Jamaica and continued trade credits to Cuba. Meanwhile, Chinese light manufacturers eat their Latin American counterparts for lunch. A few years ago, the most oft-cited economic statistic in Mexico was that more sombreros were made in China than at home.

    Filed under: Argentina, Asia, Brazil, Chile, China, Energy & Environment, Latin America, Mexico, News, Venezuela, , , , , , , , , , , , ,

    Brazil: Winter Vacations – July 2009 IXE-Banif Market Analysis

    The second half of the year starts with the Ibovespa above our YE09 forecast. This is mainly the result of foreign investors, who sought to gain a return on their capital in a world where a zero interest rate predominates. This means chosing stocks with very high daily volumes traded where there is a guarantee for investors of an exit as fast as their entrance. This being so, we start 3Q09 without changing our expectations for the year-end. We have therefore chosen a portfolio that is much more conservative than the ones we chose in previous months. We are also monitoring upcoming IPOs that, with Visanet’s successful allocation, should start cropping up, but at a more selective rate.

    The Brazilian Central Bank meets again on July 22. Expectations are that this will be the last meeting this year in which it cuts interest rates. The Government remains more optimistic on the growth of the country for the rest of this year than does the market. To be sure, it did revise its estimates downwards in line with the World Bank but, unlike the World Bank and the majority of economists, it still forecasts a growth (0.8%), while others estimate a fall of around 1.0%. Data on the second quarter should point to a recovery, especially for personal consumption, but not enough to reverse the year’s negatives.

    The appetite of foreign investors decreases
    Foreigners have been the clear buyers in the Brazilian stock market during 1H09. Looking for some form of profit when interest rates in most countries are around zero, they invested their money in Brazil, enabling the Brazilian stock market to recover a good part of the losses it suffered at the start of the crisis. The question asked now is who will continue to maintain the good performance of the Brazilian stock market. Bets return to pension funds, but these have slowly increased the participation of stock in their portfolio from 10% three years ago to nearly 20% this year.
    Profit taking should predominate. Download: Brazil – Monthly allocation – July 2009 Banif- IXE

    Stock – Catalyst/Fundamentals
    AMBV4 – Solid market share leadership, with an attractive FCF yield
    BRTP4 – Greatest potential in the sector to increase in value
    CSNA3 – Increase in ore sales to China
    DURA4– Synergy gains from the merger with Satipel
    ELPL6 – Should announce good dividends when publishing 2Q09 results
    GOLL4 – July is a good month for air traffic
    ITUB4 – Continuous growth in credit leads to better 2Q09 results
    MMXM3 – Should announce new business deals in July
    PCAR4 – Defensive business, with exposure to consumption and a high FCF yield
    PETR4 – Should perform on a level with Ibovespa
    VALE5 – Increase in the price of nickel caused by an increase in demand.

    Source: Source:IXE & Banif, 01.07.2009

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

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