Brazil snatches largest emerging market crown from China
Latin American nation’s M-Cap rises above $500 billion on rising retail sales, zooming demand for its commodities.
By Bloomberg |
NEW YORK/RIO DE JANEIRO: Brazil���s Bovespa Index is beating the biggest stock markets this year on the fastest retail sales growth since at least 2001 and rising global demand for the country���s metals, oil
and sugar.
The Dow Jones Industrial Average, Japan���s Nikkei 225 Stock Average, the UK���s FTSE 100 Index and benchmarks from the six other largest equity markets fell more than the Bovespa, which lost 0.6% through the end of February.
The Bovespa gained 6.7% last month, the best among the biggest markets��� indexes, and Brazil���s market value rose above $500 billion, surpassing China as the largest emerging market, MSCI, data compiled by Citigroup show.
The 64-member index overtook the Dow average, the best performer in January, led by gains in Gerdau, Brazil���s biggest steelmaker, and Cia de Bebidas das Americas, the country���s largest brewer.
The Bovespa trades at 14.8 times its members��� reported profit, compared with 15.9 for the MSCI Emerging
Markets Index.
���We still see plenty of upside for these stocks,��� said William Landers, a fund manager at BlackRock in Plainsboro, New Jersey, who invests about 70% of the $7.8 billion in Latin American assets he manages in Brazil. ���Brazil still
looks very attractive from a valuations perspective.���
On Monday, the Bovespa gained 1.1% to 64,156.91 as of 11:39 am in New York. Among the 10 biggest stock markets, only China���s CSI 300 Index rose more, adding 2.5%. The Dow average declined 0.5%, while the Standard & Poor���s 500 Index, the benchmark for American equities, lost 0.3%.
Brazil became a net foreign creditor for the first time this year, inflation dropped to a seven-month low in February and the nation���s benchmark interest rate is at a record low 11.25% following two years of cuts.
The nation���s currency, the real, strengthened to the highest in nine years against the dollar last week. The real rose about 4% against the US currency this year, boosting dollar-based returns on the Bovespa to 4.5%, also the best among the world���s 10 biggest equity markets.
Investors may be underestimating the possibility of higher interest rates in Brazil and a slowdown in earnings growth should the US slip into a recession, according to Geoffrey Dennis, a New York-based Latin America equity strategist at Citigroup.
Brazilian shares are expensive, Dennis wrote in a February 25 research note. The Bovespa���s price-to-earnings ratio increased 7% last month and is up 27% since the end of 2005.
���There���s still a lot of positive things going on, but it is much more priced in than it had been historically,��� said David Lazenby, who oversees $6 billion in emerging-market equities and manages the Legg Mason Emerging Markets Trust from Boston.
Lazenby reduced his holdings in Brazil at the beginning of the year.
Growth in Brazil will weaken and the economy is expanding at about half the rate of larger markets including China, according to economists in a survey conducted November 21 to December 5.
Brazil���s gross domestic product may expand 4.4% in 2008, down from 4.9% last year, the survey said.
and sugar.
The Dow Jones Industrial Average, Japan���s Nikkei 225 Stock Average, the UK���s FTSE 100 Index and benchmarks from the six other largest equity markets fell more than the Bovespa, which lost 0.6% through the end of February.
The Bovespa gained 6.7% last month, the best among the biggest markets��� indexes, and Brazil���s market value rose above $500 billion, surpassing China as the largest emerging market, MSCI, data compiled by Citigroup show.
The 64-member index overtook the Dow average, the best performer in January, led by gains in Gerdau, Brazil���s biggest steelmaker, and Cia de Bebidas das Americas, the country���s largest brewer.
The Bovespa trades at 14.8 times its members��� reported profit, compared with 15.9 for the MSCI Emerging
Markets Index.
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���We still see plenty of upside for these stocks,��� said William Landers, a fund manager at BlackRock in Plainsboro, New Jersey, who invests about 70% of the $7.8 billion in Latin American assets he manages in Brazil. ���Brazil still
looks very attractive from a valuations perspective.���
On Monday, the Bovespa gained 1.1% to 64,156.91 as of 11:39 am in New York. Among the 10 biggest stock markets, only China���s CSI 300 Index rose more, adding 2.5%. The Dow average declined 0.5%, while the Standard & Poor���s 500 Index, the benchmark for American equities, lost 0.3%.
Brazil became a net foreign creditor for the first time this year, inflation dropped to a seven-month low in February and the nation���s benchmark interest rate is at a record low 11.25% following two years of cuts.
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Bank lending grew 27% in December from a year before, the fastest pace in 12 years, helping spur demand for cars, homes and furniture, according to Brazil���s central bank.The nation���s currency, the real, strengthened to the highest in nine years against the dollar last week. The real rose about 4% against the US currency this year, boosting dollar-based returns on the Bovespa to 4.5%, also the best among the world���s 10 biggest equity markets.
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Billionaire investor Warren Buffett said in a letter to shareholders on February 29 that the only ���direct��� currency investment made last year by his Berkshire Hathaway holding company was in the real against the dollar.Investors may be underestimating the possibility of higher interest rates in Brazil and a slowdown in earnings growth should the US slip into a recession, according to Geoffrey Dennis, a New York-based Latin America equity strategist at Citigroup.
Brazilian shares are expensive, Dennis wrote in a February 25 research note. The Bovespa���s price-to-earnings ratio increased 7% last month and is up 27% since the end of 2005.
���There���s still a lot of positive things going on, but it is much more priced in than it had been historically,��� said David Lazenby, who oversees $6 billion in emerging-market equities and manages the Legg Mason Emerging Markets Trust from Boston.
Lazenby reduced his holdings in Brazil at the beginning of the year.
Growth in Brazil will weaken and the economy is expanding at about half the rate of larger markets including China, according to economists in a survey conducted November 21 to December 5.
Brazil���s gross domestic product may expand 4.4% in 2008, down from 4.9% last year, the survey said.
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