Supporters of Dilma Rousseff, president of Brazil, celebrate the result of the national... Read More
Now that the votes have been counted and President Dilma Rousseff has begun celebrating in Brasilia, here are some tips on how to make money in her second term, courtesy of UBS AG, Banco Itau BBA SA, HSBC Holdings Plc and Loomis Sayles & Co. Finding profitable trades was no small feat in her first term, with stocks, bonds and the currency all underperforming emerging-market peers.
*Real: -- Consensus here is to bet against the currency. Without any significant policy changes by Rousseff, the real will slide to 2.73 per dollar by the end of 2015 from 2.4739 now, HSBC strategists including Ben Laidler wrote in an Oct. 22 report. UBS sees the Brazilian currency falling to 2.7 after Rousseff’s re-election while Bianca Taylor, a strategist at Loomis Sayles, forecasts a drop to
2.6 this week. Italo Abucater, the head of foreign-exchange trading at Icap do Brasil Ctvm, said the real will close 2014 at 2.7 or lower.
*Ibovespa (IBOV): -- Stocks will tumble today in Sao Paulo, sending the Ibovespa gauge down about 8 percent to 48,000 today, UBS strategist Geoff Dennis said by phone yesterday. The NEXT FUNDS Ibovespa Linked ETF (1325), an exchange-traded fund investing in Brazilian equities, fell as much as 8.4 percent in Tokyo after the election results were announced. UBS would recommend investors start buying shares if the Ibovespa drops closer to 45,000, Dennis said. Joao Pedro Brugger, a portfolio manager at Leme Investimentos, said the gauge may fall as much as 10 percent today. While the index now trades at a five-month low 10.07 times estimated earnings, a level below 10 times would be too cheap to ignore according to Andrea Salvatori, the London-based head of emerging market equity research at Pioneer Investment Management Inc.
*Exporters: -- Shares of BRF SA, Brazil’s largest food company, and auto-parts maker Mahle-Metal Leve SA Industria e Comercio both stand to benefit from the drop in the real, which makes their products cheaper abroad, according to UBS. The bank has a buy rating on Metal Leve, which gets 40 percent of its sales overseas, with a target price of 27 reais, 23 percent higher than last week’s close. UBS says BRF, which gets 44 percent of revenue abroad, is also a buy and the shares may gain 27 percent.
*Education companies -- College operator Kroton Educacional SA has risen five-fold during Rousseff’s administration and smaller rival Estacio Participacoes SA has more than doubled. For-profit education companies benefitted from a cut in student loan rates and programs that made repayment easier, according to Marcel Kussaba, an equity analyst at the asset management firm Quantitas. As long as unemployment rates remain low, enrollment should continue to increase, he said.
*Corporate and sovereign dollar bonds -- Rousseff’s win is “very negative for Brazil” and was not fully priced in by bond investors, said Loomis Sayles’s Taylor. Bonds from lenders Banco Bradesco SA and Itau Unibanco Holding SA could provide some protection from the selloff, according to Carlos Gribel, the head of fixed income at Andbanc Brokerage. Gribel said they will probably outperform securities issued by state-owned companies.
*Local sovereign bonds -- Investors may be betting on more interest-rate increases than the central bank will carry out next year, making yields on fixed-rate bonds attractive at current levels, Marcelo Mello, who oversees 22 billion reais as Chief Executive Officer at SulAmerica Investimentos, said by phone from Sao Paulo Oct. 17.
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