LatAm Equities Seen Recovering in 2009

LatAm equities are poised for a 39% rally next year, according to Merrill Lynch. The shop predicts the region’s 7.0x 12-month forward P/E ratio, an 8.6% discount to other EM equities, leave the region’s indices well positioned for a pickup in coming months. LatAm corporates’ relatively low leverage will also contribute to a faster recovery for the region, says the shop, which recommends an overweight position in Brazil, a neutral position in Mexico and an underweight in Chile equities. Strong macreconomic policies and swift, effective responses to the credit crisis by central banks also bolster the region’s equity markets heading into 2009, says the shop. “Brazil is trading at an attractive 19% discount to GEM’s – back to the levels presented in February 2007 when the country was not investment grade – and presents the strongest case for valuation multiples re-rating to GEMs and developed markets, in our view,” says Merrill. Dedicated LatAm equity investors have lost almost 60% this year, according to Lipper, so the 39% rebound is only a two-thirds retracement. And the region’s markets will likely stay highly correlated to US markets, which look set for further downside as the recession gains pace, so bullishness may be premature.