BRL to Outperform MXP: Merrill

The MXP will suffer more severely under the global downturn than will the BRL, says Merrill Lynch. The shop expects the BRL to strengthen to BRL2.10, boosted by an expected improvement in global risk appetite in Q4. On February 25 the Brazilian currency stood at BRL2.38. A sizeable pool of FX reserves and commitment to intervention from the central bank should also help contain the risk of a sharp sell-off for the BRL, says Merrill. The MXP, on the other hand, should remain in the MXP14.50 per US dollar range over the next six months, with risks skewed to further devaluation, although it expects a strong rebound to MXP13.25 toward the end of the year as well. On February 25 the MXP traded at 14.93. “The US recession will lead to a deterioration of Mexico’s balance of payments given reduced export demand and a slowdown in remittance inflows, and is therefore expected to weigh somewhat on MXP performance,” the shop says. Merrill has revised downward its year-end forecasts for LatAm FX since January. It cut the BRL to BRL2.10 from BRL1.90, and the MXP to MXP13.25 from MXP11.50. The COP should fall to COP2,650 from 2,300; the CLP to CLP625 from CLP580, and the PES to 3.25 from 2.95, says Merrill.