Latin Finance - March/April 2010 - 48

Brazil equity opportunities Rally Hits Headwinds by John Rumsey fter a 2009 of bountiful returns in Brazilian equity markets that stoked interest from new investors, bankers see a strong deal pipeline that should keep markets well-fed in the ﬁrst half of 2010. With elections looming and rates trending higher after June, the ﬂow will run dry. Pessimists say valuations are already stretched and the murky global scenario spells trouble for the economy, pointing to January’s poor performance. In the ﬁrst quarter, most investment bankers saw many reasons to be breezy on Brazil’s prospects. A quick rebound from recession and an estimated return to growth of 5% this year dovetails with a powerful emerging middle class consumer story while the developed world remains sluggish. “Whenever we talk to parties looking at the region, they just want to talk about Brazil. It’s a growing market,” said Nicolas Aguzin, CEO of Latin America at JPMorgan. Citi and HSBC Asset Management have an 80,000 target for the Bovespa index and Goldman and Itaú BBA have 85,000. This represents a near 30% appreciation from early February’s level and follows a 75% leap Investors of all stripes are piling into Brazil. Some may end up losing their shirt in the index last year. With such bullish prognostications, new increasing substantially, adds Aguzin. investors are scrambling to get in, including cross-over global Global funds are increasingly active on the Bovespa, according funds scouting growth in a depressed global economy. There is to Pedro Leite da Costa, head of equity capital markets for also a rapidly growing Asian investor base keen to diversify. Goldman Sachs in Brazil. They tend to have an unwavering focus Alexander Gorra, head of the international platform at BNY on market leaders as they scour the planet for best opportunities. Mellon ARX, an area dedicated to looking for international “Global funds are focused on the leading companies in their opportunities, spent December with investors in Japan, Korea, respective segments,” he notes. When they ﬁnd the right stock, Singapore and China and discovered they were very positive they are prepared to pay up for it, he adds. about Brazil and had very speciﬁc ideas about sectors. “They very The buyside is hungry for pure Brazil plays which exploit a clearly see the biggest growth sectors as domestic consumption middle class fed by higher salary levels and easier access to credit. and infrastructure,” he says. That is easier than it sounds, owing to the Bovespa’s still heavy concentration on commodities, which represent some 40% of the Index Disconnect total index. “Retail names represent 4% of the index but account To capitalize on that interest, BNY Mellon launched a Brazil > for 13% of GDP so there’s a huge disconnect between market equity infrastructure fund for Japanese investors January 12 that weighting and GDP,” points out Gorra. had raised $200 million by the end of that month. The Brazilian Investors also continue to be wary of smaller deals after 2008 order ﬂow from JPMorgan’s Asia sales and trading team has been punished illiquid stocks. “The lesson I learned from the crisis in A game of two halves is predicted for Brazilian equity, which started 2010 on shaky ground. New issuance is scheduled for the ﬁrst half, but volatility will follow. 48 LATINFINANCE March/April 2010
Latin Finance - March/April 2010

Table of Contents for the Digital Edition of Latin Finance - March/April 2010
