Analysts Predict Brazil Equity Rebound

MSCI Brazil is down 18.7% and underperforming GEM, but analysts remain constructive. Citi notes that the Bovespa is 21% lower than a late-May high of 73,516 and has broken below 50 and 200-day moving averages, but it is optimistic of an upside breakout. “We are positive long-term and expect the Bovespa to eventually break out of its 57,000-63,000 range to the upside; our end-2008 target is 66,000,” says Citi. The Bovespa slipped out of that band, closing 3.51% lower at 55,609 Monday. Citi stays overweight Brazil materials, utilities and consumer staples. UBS meanwhile remains constructive on commodity stocks, with 20% in Petrobras, 15% in CVRD, 15% in Gerdau, 5% in Magnesita, and 5% in Heringer. “We believe the sector was oversold in July, and we see a combination of attractive valuation, good 2Q results and supportive supply/demand,” says the Swiss shop. UBS is also raising exposure to real estate and consumer discretionary equity, following a sell-off, expressing the view via Rossi (10%) and B2W (15%). “Responsible monetary policy, large FX reserves, good balance of payments, low exports ratio as % of GDP, strong labor market, and under-leveraged companies provide a constructive environment for supportive domestic activity, sustainable GDP and earnings growth,” says UBS. “PE09E of 9.3x does not reflect these factors, and we see limited downside risks despite current global concerns.”