Tuesday, December 15, 2009

Bovespa 2010 Projections: Targets Range From 80,000 to 89,000 Level (+30%)

Bovespa floor

Agencia Estado interviewed several economists in Brazil about the prospects for 2010.

Brazil's Bovespa began in 2009 at under 38,000 points, but ended the year sporting a greater appreciation. After going from heaven to hell amid the worsening financial crisis in the second half of 2008, Bovespa had a comeback in 2009 with the resumption of IPOs and a flight of imbound foreign capital.

Bovespa was the scene of the largest stock offerings in the world this year - Santander (U.S. $ 13.2B) and Visanet (U.S. $ 8.4B). The Brazilian stock market rose about 84% and ended the year much higher, surprising most experts. Only the Shanghai Stock Exchange has a similar growth rate in the year of 78%. This appreciation of the Bovespa index gained in 2009 is even more staggering when compared to the ROI od the Dow, 19.6%, which in turn is similar to the exchanges of London, 19.9%, and Paris, 19% - data computed until yesterday.

The Bovespa suffered for only two months of losses (in February and June). The Brazilian stock market is very retrieving its record high of 73,516 points achieved in May 2008. For 2010, the promise is of a very favorable year for the Brazilian stock exchange, driven mainly by the growth of the domestic economy, as opposed to the rest of the world which tends to have moderate recovery. But the gains seen this year filled not be repeated with the same intensity and volatility may be exacerbated due to external variables.

Forecasts for the Bovespa revolve around a recovery 25% to 30%, which would put the index at the level seen in the 80,000 to 89,000 points. While it may seem a lot, after the great year 2009, the Bovespa has room to keep moving forward because of the good prospects for economic growth for 2010 and the improvement of the fundamentals, says the Investment Director of HSBC Global Asset Management, Mario Felisberto.

It projects the index to reach about 80,000 points, with a 28% increase in profits of Brazilian companies.

Home Economics

George Sanders, manager of Infinity Asset manager, estimates that half of the gains seen in the Bovespa this year were an exaggeration. Thus, it will be very difficult to keep pace in 2010, when he predicts an increase of 25% to 30% in the Bovespa index. The domestic economy, even if it follows its path of expansion, will likely deliver the worse numbers, including fiscal, in addition to basic interests rate probably going back up.

Nevertheless, what could limit the gains of the stock market is the external market. "There is a risk that the world less growth, and that inflation rises before growth," he adds.

For the director of the Agora Brokerage Alvaro Bandeira, what will determine whether 2010 will be a good or a wonderful year is the process of withdrawal of fiscal and monetary stimulus implemented by several countries. "That is what will determine the liquidity in financial markets," he said. The beginning of this movement in dismantling of incentives by governments to combat the perverse effects of the financial crisis is expected by March next year.

Mr. Banderia also expects Ibovespa between 80,000 and 85,000 points, or growth between 20% and 25%.

"Regardless of the withdrawal, the positive effect of fiscal and monetary stimulus tends to dissipate over 2010 and, therefore, global economy may have a less vigorous growth than what has been outlined," says the strategist of Brazil's Santander, Marcelo Audi. This is the biggest risk for the Bovespa next year, he said.

U.S. and Europe

Americans and Europeans economic indicators should send mixed signals about the behavior of activity and employment, leaving the market confused. Because of this, the strategist at Santander warns that volatility is increasing, but within a positive trend. He estimates the Bovespa at 80,000, a growth of earnings per share of 28% in 2010 and 22% in 2011.

"The Brazilian stocks are good candidates to have a better return than the average global stock because Brazil has better macroeconomic fundamentals, but the correlation with the external environment will remain strong," says Audi.

Link Investments estimates for 2010 growth of 15% in operating profits and Brazilian Bovespa index of 85,000. "There is still room to buy Brazil. There macroeconomic fundamentals (GDP, interest and exchange rates) and microeconomic enough to believe that Brazil is not just 'fashionable' because it has gone through the first year of the crisis in a positive manner, but also because is able to significantly accelerate the pace of its growth in coming years, "said Link in a report to clients.

In recent weeks, some financial institutions amounted to more than 6% of the forecast GDP growth in 2010, which provides favorable environment for companies to increase their profitability.

For the director of resources of Hera Investment, Nicholas Barbarisi, the rise in 2010 should be based on the fundamentals of the economy, without much excitement. "An increase of 40% is possible, but before any projections, there are several assumptions to think about, such as the external environment. The recovery out there is very slow and may hinder the progress of the domestic stock exchange," he says.

The manager of equities brokerage TOV, Alceu Pedro Cardoso, estimates that 2010 should start at a standstill, with investors awaiting the numbers in the first quarter to see which direction to take for the year. He believes, however, that the trajectory continues positive and reminds that election years are favorable for equities because of the investments committed by the government. He expects a growth of 25% to 30%. "If you go up twice the interest it will be a big deal," he says.

For the economist Legan Asset Fausto Gouveia, the challenge of the investor on the Stock Exchange in 2010 is to be cautious. "The challenge for 2010 is the same as for the end of this year: be selective in choosing stocks and be careful to pay what they are worth," he says. He said sectors oriented to the internal market, such as steel, construction, retail and services should be shine next year, while sectors that depend heavily on exports are less favorable.

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