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
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