China Boosts Brazil Equity: HSBC

Brazilian equity markets are well positioned to benefit from a pickup in Chinese demand, according to HSBC. The shop moved Brazil to overweight from neutral, based in part on the notion that China’s economy is already benefiting from its government’s economic stimulus and is demonstrating an ability to recover from financial slump more quickly than the developed world, says HSBC. China’s public sector infrastructure projects, seen moving forward despite the downturn, will help stabilize commodity prices, which has a direct impact on many of Brazil’s leading stocks. Brazil also fits two of HSBC’s three criteria for a desirable EM equity play. It has positive disinflation tendencies, and the currency is more likely to strengthen than weaken at this point, having depreciated 32% from its peak in 2008. Brazil’s apparent inability so far to expand independently of developed markets is among weaknesses as an overall EM story. Latest economic data has been very weak, says HSBC. The shop, however, acknowledges the country’s overall solid financial system and positive measures by the central bank to alleviate stress on banks. Its external debt profile is also manageable, it notes.