Brazil Investors Negative on 2012 Equity Prospects

Brazilian investors paint a poor picture about the prospects of any immediate improvements in the equity markets in 2012 as broader international problems weigh on secondary performance. “There is an expectation for a strengthening in the second quarter of 2012. It has turned from a negative perspective to a positive one. But that doesn’t make a difference when you are trading on European headlines,” says Joao Carlos Scandiuzzi, chief strategist at BTG Pactual Asset Management, which has BRL85bn ($47bn) of equity assets under management. While bankers are optimistic some new deals will get done, many investors are skeptical. “The investor community is more conservative when we analyze new issues, so I think it is going to be another tough year in the equity markets,” says Pedro Sales, equity portfolio manager at Credit Suisse Hedging Griffo. “It’s not a question of China, Europe or the US, it is just that the new issuers have not been performing well.” His shop, which has $30bn equivalent under management, including asset management and private banking, has been focused on picking companies that have been trading down, including Helbor in real estate, Itau in banking, and Ultrapar in the fuel distribution space. “Stock picking in Brazil is extremely important. It’s not that easy to find good investments. You have to dig,” he adds. Would-be new issuers should pay attention to investors’ desire for size and liquidity, he says. “There are a lot of companies waiting to issue. Some of them are large and some of them are small, but most lack the quality that we saw in the beginning of the cycle in 2006. When you combine the power that the buyside now has with the quality of the pipeline, probably you will begin to see a more fair value with lower pricing,” says Alexandre Silveiro, portfolio manager at Quest Investimentos.