We view the equity market from a slightly more positive perspective when compared to the 2013 scenario, since we now see somepositive asymmetries and more attractive valuation in some stocks. Analyzing the most important themes for 2014 (tapering, presidential election and economic slowdown in Brazil), the market seems to be pricing in bearish view on these three performance drivers.
Despite important imbalances in the economic forecast of lower economic growth rates, we do not share the over pessimism of some local analysts and investors. Brazil´s strength comes from a robust consumption market and solid institutions, what maintains the country moving forward even when we face headwinds. It is also clear that changes in the monetary policy in the U.S. will impact local interest and FX rates, but the country has deriving from these events. We don’t see big prospective surprises on these issues. growth and international monetary shocks seem to have small downside risks, the political scenario shows an interesting upside potential. The market assumes the maintenance of current economic policy. We also see Dilma as favorite but consider a tougher election, with the opposition having higher probability of winning, when compared to the market. This event would be highly celebrated by the market and prices
In the case current government gets reelected, we see a higher chance of a second mandate having a new and market friendly economic policy. Despite shy and modest, recent decisions in monetary policy (interest hikes) and privatization program (roads, airports, moved to a corner where the President is “forced” to turn to a policy similar to Lula´s. Such move would be also highly welcomed by the market.
Since the end of 2012, we strategically managed to be more exposed to stocks that and companies with products quoted in USD, like commodities), and at the same time we avoided stocks and business models that depend on real income and consumption growth. For 2014, we still see value on “long dollar” stocks, since we expect the Real to imbalances and U.S. monetary tightening. On the other hand, stocks we avoided in the past months, mainly in retail and discretionary consumption, seem to be now in a more compelling valuation after big losses this year.
We expect next months to be similar to 2013 results). Discussions about perspectives for 2015 will be anticipated to late 2H14, when presidential campaign will warm up (it willreally start after the World Cup in July). Until then we will monitor the market, waiting the best entry point for eventual changes in the portfolio. We view the equity market from a slightly more positive perspective when compared to the 2013 scenario, since we now see some positive asymmetries and more attractive valuation in some stocks. Analyzing the most important themes for 2014 (tapering, presidential election and economic slowdownin Brazil), the market seems to be pricing in a bearish view on these three performance drivers. Despite important imbalances in the economic
