No. 1 Stock Market in Americas Forecast to Climb 15% Next Year

(Bloomberg) -- Brazil’s stock market, this year’s best performer in the Americas, is forecast to extend its record-setting rally in 2020.

The Ibovespa index will climb 15 percent from Friday’s close to 131,900 by the end of next year, according to the average estimate of 10 strategists surveyed by Bloomberg. That would mark a fifth straight year of gains, on par with the 2004-2007 stretch as the longest run of positive returns on record.

Underpinning confidence among prognosticators is a string of data showing growth in Latin America’s largest economy may be accelerating. With interest rates sitting at a record low and a more market-friendly agenda seen moving forward in Congress, all is bound to encourage Brazilians to take on more risk, strategists say.

“We continue to see room for the Brazilian market to re-rate on lower cost of equity (supported by reform momentum, low interest rates and fresh flows from international and domestic investors),” Itau BBA’s strategists led by Pablo Ordonez wrote in a report earlier this month.

The Ibovespa index has advanced 31% this year, driven by early signs of a pickup in growth and progress in the government’s efforts in tackling a long-awaited social security overhaul. Data from this month showed gross domestic product expanded more than forecast in the third quarter and the pace of formal jobs creation accelerated last month.

“Brazil has one of the best short-term cyclical quadrant combinations for equities: accelerating GDP with controlled inflation,” Santander’s strategists led by Daniel Gewehr wrote in a report last Wednesday. “Although the asymmetry is less attractive after a robust performance, we believe the Brazilian market should test higher multiples.”

At Friday’s close, the Ibovespa index traded at 13.4 times forecast earnings, the highest multiple in almost two years, data compiled by Bloomberg show. In U.S. dollar terms, the index is still 33% below its all-time high set in 2011.

Read more: Strategists’ Ibovespa Index Estimates for Year-End 2020 (Table)

Bradesco BBI, whose 2020 forecast of 139,000 is the highest of all, expects demand from foreign investors to help absorb equity offerings over coming months. Gilson Finkelsztain, the chief executive officer of B3 SA - Brasil Bolsa Balcao, Brazil’s sole stock exchange, said this month that the firm expects about 20 to 30 share sales next year.

Despite this year’s rally, foreigners have pulled about 15 billion reais out of Brazilian equities in 2019 through Dec. 17. Excluding their purchases of corporate equity offerings, the outflows widened to about 42 billion reais ($10.3 billion), according to data from B3.

Brazilian equities will attract at least 210 billion reais of fresh money on a net basis next year, according to Bradesco BBI’s strategists led by Andre Carvalho wrote in a Dec. 16 note. “This forecast is conservative,” they said.

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, Lu Wang, Richard Richtmyer

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