Two plays on booming Brazil
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After a jittery few weeks, Brazilian stocks are edging back to their record highs. And the upswing of the past three years is likely to endure.
Continued demand from China for Brazilian commodities is underpinning export growth, while consumption – now expanding at an annual rate of 15%, according to Thomas Gerhardt of DWS – should also help GDP growth reach 3.2% this year and 3.6% next as interest rates fall further. Inflation has been tamed and public debt trimmed, which, along with a record trade surplus for the year to date, has reduced the country’s vulnerability to external shocks.
Inflows into equities from pension and mutual funds are likely to reach about $24bn over the next two years – 14% of the market’s capitalisation – as lower interest rates make riskier investments more appealing, according to Pedro Martins of Merrill Lynch. The market is on a 2005 p/e of less than eight, below its ten-year historic average of 11.
A play on booming consumption is Banco Bradesco (BBD, $54, listed in New York), whose third-quarter earnings doubled amid soaring demand for consumer loans; Merrill’s Paul Tucker rates it a buy. Liu-Er Chen of the Evergreen Emerging Markets Fund likes oil major Petrobras (PBR, $64).
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