Bovespa Index to Rise to 67,000, Credit Suisse Says
Bloomberg, Nov 02, 2009
Brazil’s Bovespa index may climb to 67,000 by the end of the year, helped by the outlook for earnings, an “attractive” valuation and the impact of the global economic recovery, Credit Suisse Group AG said.
The forecast is higher than an August estimate of 64,500, according to Credit Suisse analysts including Emerson Leite. The analysts added that they are turning “increasingly cautious” on Mexican shares, citing fiscal reform voting, a potential downgrade in the country’s sovereign debt and the market’s valuations.
Credit Suisse’s forecast represents a further gain of 8.8 percent in the Bovespa, which has already rallied 64 percent this year on expectations that a recovery will boost demand for commodities and spur an earnings rebound. That has outpaced a 59 percent gain in the MSCI Emerging Markets Index and a 28 percent increase in Mexico’s Bolsa Index.
“Since we set our target back in August, our aggregate earnings expectations for the Bovespa in 2010 and 2011 rose by some 4 percent,” the analysts wrote in the report dated Oct. 30. “We remain above consensus for 2010 earnings and continue to see upside risk.”
Even after its gains this year, the Bovespa is valued at about 15.5 times reported earnings, in line with the MSCI Emerging Markets Index’s multiple of 15.6 times.
The Brazilian benchmark index may top 85,000 by the middle of next year because valuations are “still low,” Goldman Sachs Group Inc. said on Oct. 26. Brazil’s share valuations are not an “impediment” to further gains, JPMorgan Chase & Co. said in a note last week.
“Although multiples look rich versus historical levels, we highlight that the cost of capital is now close to record low levels in Brazil,” the Credit Suisse analysts said. “The spread between the Bovespa’s earnings yield and interest rates also seems attractive.”
Banks, airlines and property stocks are among industries in Brazil where the brokerage has an “overweight” recommendation.