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Brazil Stocks Are Poised to Break Their May Monthly Curse

Brazil Stocks Are Poised to Break Their May Monthly Curse

(Bloomberg) -- Brazilian stocks are heading for their first monthly gain in May since 2009 as domestic investors warm up to an easing political climate.

The country’s benchmark equity Ibovespa index is up 1% this month, bouncing back after a sharp slide during the first three weeks of May. Weaker-than-expected economic growth indicators in Latin America’s largest economy have been offset by a marginally improved political landscape, as domestic investors see better prospects for the social security overhaul.

“We believe Brazil will deliver a sizeable pension reform on 2H19,” Santander’s strategists led by Daniel Gewehr wrote in a report from May 16. “We think Congress is now the owner of this agenda , and there has been little opposition to key elements of the reform, such as a minimum retirement age,” Gewehr said.

Santander reiterated its overweight recommendation for Brazil and price target of 115,000 for the Ibovespa -- about 18% upside from current levels.

Brazil Stocks Are Poised to Break Their May Monthly Curse

“We’re not adding nor reducing Brazil,” said Peter Taylor, head of Brazilian equities at Aberdeen Asset Management Plc., who has a small overweight in the country’s equities. “We’re looking at the third year in which there’s a disappointment on growth recovery and we’re still in a wait-and-see mode regarding the pension reform,” he said in a phone interview.

The advance comes even as foreigners pull money from the local equity market. Overseas investors have pulled 5.2 billion reais ($1.3 billion) from local equities this month through May. 28, reversing the positive flow number for the year, according to B3 exchange data compiled by Bloomberg.

Brazil Stocks Are Poised to Break Their May Monthly Curse

According to Schroders’s head of Latin American equities’ Pablo Riveroll, the pension reform’s approval or a faster pace of economic recovery would be needed for him to add to his Brazil overweight.

Among the nation’s stocks, Schroders currently likes private utilities, homebuilders, non-bank financials, tech and discretionary consumer names, according to Riveroll, who helps oversee about $9 billion in Brazilian stocks.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Morwenna Coniam, Dave Liedtka

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