Brazil: Equities Still Going Strong
Me and my colleagues at Business Monitor have remained outright bullish the Brazilian Bovespa since early August – a view which continues to look very strong in the BMI portfolio. At some point today, the position was up 10.4%, and continues to head towards BMI’s 64,000 target, following a strong weekly close last week (at 61,172).
To be sure, there are a number of compelling reasons to remain bullish Brazilian stocks, in my opinion, with strong global investor sentiment not showing any signs of abating (just yet). Brazil also leads Latin America’s economic recovery, with a robust bounce in economic activity, a spike in manufacturing confidence and industrial capacity utilization all pointing towards a strong comeback for the Brazilian economy.
An Olympic Rally?
Though the medium-term effects of successful bid to host the 2016 Olympic Games in Rio de Janeiro have yet to be put under Risk Watchdog’s magnifying glass (stay tuned), I would imagine that investor confidence has likely been further boosted by news of the IOC decision on Friday. Construction, transportation and tourism, in particular, could stand to benefit from the development, making these sectors a potential pick for portfolio investors going forward. For the time being, however, I view this as little more than yet another complimentary factor why investors should remain confident in the Brazilian economy and the government’s policymaking credentials.
Brazil – Foreign Portfolio Flows (US$bn) & Bovespa Index
Foreign Portfolio Flows Return To The Good Days
Foreign investor risk appetite remains absolutely key for the rally in Brazilian equities. The accompanying chart illustrates how foreign portfolio investments started to flow back into Brazil in March, for the first time since the emerging market-wide sell-off in equities in September 2008. Portfolio inflows shot back to pre-crisis levels, surging to US$7.52bn in July, the highest level since July 2007. This has been directly correlated with the rally in Brazilian equities. Although the possibility of macroeconomic reality biting at market sentiment (especially in light of the weak US non-farm payroll number) remains a near-term risk, I would say that the unabated commitment from global policymakers to keep fiscal and monetary stimulus in place could see money flowing into equity markets for a little longer.
