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Brazil Waiting for an Interest Rate Boost

Brazilian and Latin American stocks declined, yesterday, as investors logged profits following record closing highs last Friday. Still, Argentina’s market continued upward, as investors remain positive about the country’s ongoing debt swap.

Brazil’s benchmark Bovespa Index slid 138.63 points, or 0.52%, while Mexico’s benchmark Bolsa Index fell 149.67 points, or 1.09%. Argentina’s Merval Index climbed 21.02 points, or 1.40%.


Brazilian stocks pulled back following a record closing high on Friday. Investors prepared for Brazil’s central bank to boost interest rates this week, after Brazil’s IBGE statistics institute reported January IPCA inflation reached 0.58%, near the high end of estimates, while 12-month inflation hit 7.41%.


The central bank has set a year-end inflation target of 5.1%, prompting many analysts to forecast continued monetary tightening to come. Analysts said the data indicated the central bank will hike the reference Selic rate by at least 50 basis points to an annual 18.75% in an effort to cool a hot economy.


Banking issues nevertheless advanced, as buyers were active on speculation regarding the positive effects of European Banco Espí­rito Santo’s increased stake in top retail bank Banco Bradesco SA.


Also, investment house Bear Stearns increased its rating on Brazil’s third-largest bank, Unibanco, to “peer perform” from “underperform,” remarking that the stock has a similar upside potential to fellow Brazilian banks Banco Bradesco SA and Banco Itaú SA, which are rated “peer perform.”


Also, the investment house raised its 2005 price target on Unibanco to US$ 32.59 per American Depositary Receipt from US$ 29.83 and its price target on Itaú to US$ 79.73 from US$ 75.37, due to a higher assumption for its long-term return on equity.


On the earnings front, major Brazilian paper and pulp producer Klabin Celulose e Papel SA reported that its fourth-quarter net earnings rose to 89 million reais from 69 million reais a year earlier, driven by higher domestic sales and exports.


However, 2004 net profits declined to 455.5 million reais from 1.001 billion in 2003, partially due to the 2003 sale of a number of Klabin’s assets.


Also, shares of Embraer were active, after Venezuelan President Hugo Chavez said he was interested in discussing a possible purchase of jet fighters from the Brazilian jet maker.


The statement came as Venezuela’s Chavez met with Brazilian President Luiz Inácio Lula da Silva to sign bilateral trade agreements in their effort to establish a strategic and economic alliance between their countries.


Elsewhere, Mexican equities fell, as the domestic market reversed course after posting seven straight record closing highs. Some analysts believe the market could be headed toward 14,000 points this week, while others feel profit taking is likely after the recent string of gains and progressive record highs in the market.


One major brokerage reiterated its “underweight” stance on Mexico in its Latin American portfolio, saying it foresees multiples and earnings contracting toward the end of 2005. 


Following last week’s surprising inflation report for January, which showed flat consumer prices, projections about domestic monetary policy have eased. Still, investors will consider congressional testimony this week by U.S. Federal Reserve Chairman Alan Greenspan for indications as to what is in store for U.S. interest rates.


An analyst raised its price target on brewer Modelo C shares to 34.75 pesos from 32.00 pesos, explaining that the firm displayed a solid performance in the fourth quarter, but poor export growth.


Meanwhile, Argentine shares finished at their eighth consecutive record close on strong volume, as optimism regarding the government’s US$ 103 billion debt restructuring appears to build.


Traders noted that a rush of analyst predictions of a higher consensus estimate for the debt swap’s acceptance rate had spurred buyers to action. Also, the market appears to be discounting bondholder representatives who are attempting to block the country’s offer.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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