Strategists Bet on a Long-Awaited Economic Rebound to Fuel Brazil’s Stocks

(Bloomberg) -- Brazilian stocks have defied a slump in global equities in 2018 and strategists see an even better year ahead.

The Ibovespa benchmark index may climb 22 percent to about 106,425 by the end of 2019, according to the average forecast from eight strategists surveyed by Bloomberg. Their targets range from 100,000, suggesting 15 percent upside based on Monday’s levels, to 120,000, implying growth of 38 percent. It would mark the fourth year of double-digit increases for Brazil stocks, if the index holds onto its 2018’s gains for the rest of the month.

Underpinning this confidence is the incoming administration’s market-friendly agenda, which is expected to pave way for a sustainable recovery in Latin America’s largest economy and corporate earnings. Companies will boost profits by 20 percent next year in local currency terms, according to UBS Group AG, which forecast the Ibovespa will end 2019 at 103,000.

Strategists Bet on a Long-Awaited Economic Rebound to Fuel Brazil’s Stocks

Read More: Strategists’ Ibovespa Index Estimates for Year-End 2019 (Table)

“If companies really do deliver that kind of sustained growth, I think a lot of the skepticism about politics will fade and you could see quite strong flows to Brazil in 2019,” said AllianceBernstein’s senior portfolio manager Morgan Harting.

The Ibovespa has climbed 14 percent this year and leads gains among global indexes this quarter, as President-elect Jair Bolsonaro has vowed to implement fiscal adjustments, especially an overhaul of the social security system that’s seen as key to tackling the nation’s fiscal woes. The economic team led by University of Chicago-trained Paulo Guedes has also pledged to sell inefficient state-owned firms and deregulate industries.

While doubts remain on whether the next administration will get the Congressional votes for pension reform, strategists at Banco BTG Pactual SA said the stocks are too cheap to pass.

The bank maintained its overweight recommendation for the country on bets that the future economic team may boost privatization, spur private investment and improve governance at state-owned firms, strategists led by Carlos Sequeira wrote in a Dec. 13 report.

“Brazil is relatively more attractive than the rest of emerging markets,” said Pablo Riveroll, Schroders’ head of Latin American equities. “Brazil is probably the only EM where we’ve revised our GDP growth estimates upwards and I believe there is further upside to expectations in domestic sectors.”

©2018 Bloomberg L.P.