Citi Tips Brazil Equity

Brazil is Citi’s top equity pick in Latin America. “We raise our year-end Bovespa target to 54,000, based on improving fundamentals, not valuations,” says the shop. It closed Monday at 48,961. Citi also predicts that the Selic will fall to 10.75% by year-end and cut its 2007 inflation forecast to 3.4%. “Macro growth prospects are rising, with the risk of positive earnings surprises; this warrants a modest re-rating of the market,” says Citi. The shop adds that the positive outlook is not affected the $12.5bn of supply in the past year from 44 deals, including secondaries. “The new estimated free float is 2.8% of market cap and only 7.1 days of trading. Excluding real estate/construction, the only sector where we see indigestion, new issues have risen 34% on average and have outperformed the Bovespa by 5%,” says Citi. It remains overweight defensive Chile, and underweight Mexico.