The focus of this article is to look at the investment potential in Brazilian blue-chip banks. But let's quickly recap the macro view around Brazil, which as always, is dynamic.
The current market consensus is that even after the strong rally in the Brazilian equities (+20%) and currency during the last 12 months (note the strong inverse correlation over five years), the outlook is still broadly positive for financial assets as the risks shift to the upside after the acute economic contraction and political stress of the last two years. So far, tudo bem. As my previous articles on these pages highlight, the median end of year target for the Bovespa is still 70,000 (up by around 10% from close of play on 19th April).
And whilst a broad based basket of economic indicators – such as GDP, confidence and the Real – have started to turn north over the last few months, contrarian investors have started to think about profit taking. Indeed, after accurately calling the strong asset rally over the last 12 months, the MSCI Brazil index has appreciated by 56% in US dollar terms and 29% in local currency, outperforming the MSCI emerging market benchmark by 33%. Credit Suisse is again moving underweight in Brazilian equities. For Brazil it seems it's a case of the more things change the more they stay the same, or in this case regression to the mean of bad news.
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