Brazil’s equity market: another run for the exit doors?

There's an area of nervousness surrounding the direction of the Bovespa. After the phenomenal run-up in 2009 when dollar-based investors gained close to 150%, last year maked a significant slow down with dollar returns of some 5%. This year, the Bovespa index is down in dollar and local currency terms.

What happened? There's been a rapid convergence in expectations for growth between the developed world, particularly the US, and Brazil. . In January, the IMF predicted 2.4% GDP growth for the US versus 3.7% for Brazil. That compares to GDP growth of 7.5% for Brazil in 2009. Inflation is riding at more than 6% in Brazil. And the government is having to embark on a painful clamp down after a spending splurge in 2010. Interest rates are up, reserve requirements have been tightened to slow bank lending and the budget has been very lightly trimmed.

That has investors worrying about the durability of the economic and consumer story that has been such a driver for investments. Bank stocks, consumer and real estate stocks are all down with darlings of the market such as Natura and Lojas Renner, taking a very well-needed breather.

The markets are running to catch up with lowered expectations. Bankers are reporting difficulties in selling IPOs and the off-shore (and domestic) hedge fund industry are seeing outflows after a very strong 2009-10. The Bovespa market is heading into some choppy water.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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