Emerging Markets : Bankers Still Bullish On Brazil

Investment banks say the recent US Fed rate cut, coupled with strong domestic fundamentals, bodes well for Brazilian capital market investors. “Fed easing since mid-August has opened up a new leg of the bull market in Latin American equities, especially in Brazil,” says a Citi report. “Brazil’s huge rally to a new Bovespa high above 61,000 leaves equities expensive on most traditional valuation measures, but still slightly inexpensive relative to bonds,” adds the report, noting valuations are not yet a reason to sell.

Other investment banks agree with Citi’s bullish outlook. Credit Suisse predicts investments in Brazilian securities will hit record highs this year, with equity investments rising to $17.8 billion from last year’s $7.7 billion. The bank estimates fixed-income sales will rise more moderately to $33 billion, compared with $32.8 billion in 2006.

A statement in a regulatory filing by Fundação Asas indicates that the foundation, which controls a 69.6% stake in Brazil’s Gol Linhas Aéreas Inteligentes, the country’s second-largest air carrier, is considering a share buyback that could cost some $1.5 billion. The foundation, which manages the stake on behalf of the local Constantino family, which founded the profitable low-cost airline, would then proceed to de-list the company in São Paulo and New York. Speculation over the potential buyback drove up Gol share prices, which had lost nearly 50% of their value over the past year.

Banco BMC is the most recent member of the exclusive club of Brazilian investment-grade-rated companies. Fitch upgraded the bank’s long-term rating to BBB- from B- after its sale to Bradesco, the country’s largest private financial group. Banco BMC will continue to operate as a separate entity focused on personal consignment loans, vehicle financing mainly for trucks, and loans to small and medium-size businesses, while receiving support from its new parent.