Brazil: No short-term triggers – August 2009 IXE-Banif Market Analysis

We do not see any short-term triggers for the Ibovespa in August. The Brazilian Central Bank should keep the basic interest rates at 8.75% to the end of this year since Copom considers that the current level is consistent not only with the path that inflation should take in 2009 and 2010, but also with the recovery of economic activity. Macroeconomic indicators (employment, industrial production, etc) that showed a slight improvement in 2Q09 should continue their gradual upward trend, but at lower levels than before the start of the financial crisis.

Brazil - Monthly allocation - August 2009

The Government has used fiscal instruments in its economic policies to increase consumer confidence after the crisis. These include the reduction of the IPI (tax) on the automobile, electronics and capital goods industries. Due to the likely extension of these measures, we believe that the sectors most linked to consumption could benefit in coming months.

If, when released, economic data and company 2Q09 results confirm that the crisis has hit rock bottom, or start pointing to a small recovery, they may help the performance of the Ibovespa.
On the foreign front, although US GDP, published last Friday, July 31, came in better than expected at -1%, rather than at market expectation of -1.5%, its composition does not show any consistent or significant improvement. In particular, data on US family consumption worsened again, after a slight improvement in 1Q09. Therefore, we believe the foreign front will continue uncertain.

Concentrated Ibovespa
For the Ibovespa to go up by the end of this year, mining, steel and financial institutions would need to rally, as they carry a heavy weight in the index Petrobras and Vale do Rio Doce alone account for approximately 33% of the Ibovespa. We forecasted the Ibovespa at 48,600 points by December 2009, which leads us to believe that some profit taking will take place by YE. Because of the above points, we reduced the weight of commodity shares in our August portfolio and selected companies that we believe will report good 2Q09 results and dividends.
Outperforming the Ibovespa
Stock – Catalyst/Fundamentals
AMBV4 – Solid market share and volumes
BRTP4 – expectation of reporting a good 2Q09
CTAX4– excellent 2Q09
CPLE6 – discounted shares
ELPL6 – dividends regarding 1H09
GOLL4 – good 2Q09 could reinforce investor confidence
ITUB4 – 2Q09 forecast
JBSS3 – good 2Q09 and gradual recovery
MMXM3 – should be the target of acquisition
PCAR4 – resilience of the food segment
PETR4 – reducing weight in the portfolio
USIM5 – recovery of demand and price in the domestic market
VALE5 – reducing weight in the portfolio

Source: Banif - IXE, 03.08.2009