Latin Finance - November 2008 - 8

Equity sessions provided good opportunities to build in stocks that have been unjustly punished. He says he is buying Brazilian banks like Bradesco, Unibanco, Itaú and Banco do Brasil, as well as Mexican The punishing selloff that pushed LatAm main indices 20% lower telecoms like Telmex and América Móvil. between mid-September and mid-October has no clear end in Other consumer stories in Brazil are also attractive, says the sight. Investors are shell shocked from dizzying blows valuations and analysts have dramatically revised down year-end predictions. portfolio manager, and liquid names like Vale and Petrobras should post a strong comeback too. He is less sanguine on pure While unwilling to call a bottom, some see the selloff as a good commodity plays since the outlook for prices is deteriorating amid buying opportunity given how low prices have fallen versus falling global demand. historical levels. “What is clear is that technical factors have turned very “I don’t think the Bovespa can fall much more than this,” says positive for LatAm equities,” notes Dennis in an October 10 report. Ronaldo Patah, head of equity and hedge fund strategy at “This means that when global conditions improve LatAm equities Unibanco Asset Management, which manages 60 billion reais. He should rally strongly.” spoke on October 15 when the Average valuations for all of the Bovespa closed at 36,833, having region’s listed companies fell to under accumulated a 53% drop from its May ECM Rank by Volume, Year to October 20 No change at top in frozen market 7x trailing P/E ratios, which is the 20 highest point ever. Mexico’s Bolsa, second lowest point they have ever meanwhile was off 34% from its April Rank Bookrunner Value $m # deals reached during a bear market in the 22 peak for the year. 1 Banco Itaú 4,532.96 6 region, according to Citi. In late May, Patah sees the Brazil index ending 2 Credit Suisse 4,074.93 9 this figure stood at 17.9x. “Adjusted for 2008 closer to 50,000 than 35,000. 3 JPMorgan 3,773.40 7 the cost of capital, Latin American Itaú Securities is in agreement, saying 4 Unibanco 1,847.40 2 equities today are the cheapest they in mid-October that it expects the 5 Banco do Brasil 1,744.95 2 have ever been at the end (we hope) of Bovespa to trade in a 50,000-55,000 6 UBS 1,711.68 4 a bear market,” notes the shop. range by year-end. Despite this 7 Bradesco 1,605.93 1 Timing also favors those who guarded optimism, the trend 8 Citi 1,333.03 6 would jump back into the market, says continued to point downwards as 9 Santander 1,207.96 4 Citi, noting December is historically LatinFinance went to press. 10 HSBC 530.28 2 the best month for LatAm equity Geoffrey Dennis, Citi’s LatAm Subtotal 22,362.53 22 performance, while August is the equity strategist and a perennial longTotal 25,539.94 31 worst. Average LatAm December gains term bull on the region, limits Source: Dealogic have been 4.5% in the past 18 years, expectations for year-end 2008 to a while the November to April period 10%-15% pickup versus mid-October. has been the best rolling six-month He adds that this is the kind of period in the region since 1990. While it stops short of calling a movement seen in a single session these days. trough, Citi believed October levels were around the lowest they “I’d be surprised if the Bovespa remains at current levels would be and predicted a strong ensuing rally based on technicals. through the remainder of the year,” he tells LatinFinance, adding Among the most attractive names to buy in the region however that a further drop below the 36,000 level is not out of include Vale, according to UBS Pactual, which calls the stock the question if commodities weaken while the dollar keeps extremely cheap at mid-October levels. The shop says exposure strengthening. to iron – which is adjusted only once a year – real weakening Outflows from equity funds have also accelerated. LatAm has been one of the chief victims of the global risk aversion, having so making exports more lucrative, and strong balance sheet, far this year seen redemptions of $4.75 billion, according to EPFR recently bolstered by a $12 billion equity raise, contribute to Global. Added to cumulative portfolio losses – in the second week making Vale a bargain. of October alone performance was down 32.0% – LatAm equity Vale apparently agrees with UBS. It announced a share funds have shrunk by $22 billion, representing 60% of total assets buyback program of 70 million ordinary shares and 169 million under management (AUM) so far this year. Brazil funds preferred shares, worth some $3.4 billion at mid-October prices. meanwhile have seen $211 million in net outflows since the start Analysts welcomed the deal as it showed conviction in its stock of the year. Total Brazil equity AUM tumbled to $6 billion, from a price and a change in tune with regards to rewarding investors. peak of $17 billion in May. And steel company CSN said it would spend up to 410 million reais to buy up some 10.8 million shares. LF Mayhem Bewilders Buying Opportunity? LatAm bourses look set to oscillate wildly, driven by whippy global equities. Many are staying away until it calms, but there are some investors who see entry points. One New York-based hedge fund investor who asks not to be identified says the mid-October UPDATE For daily ECM news and an exclusive pipeline of deals see www.latinfinance.com 8 LATINFINANCE November 2008

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Latin Finance - November 2008

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