Lower Interests Expectation Takes Brazil Market to Record High

Brazilian and Latin American shares rose, as investors await the unveiling of Argentina’s acceptance rate for its debt restructuring offer. Brazil’s market closed at a new record high, driven by expectations that a round of monetary tightening in that country is nearing its end.

Brazil’s benchmark Bovespa Index jumped 468.70 points, or 1.66%, while Mexico’s benchmark Bolsa Index firmed 12.69 points, or 0.09%. Argentina’s Merval Index slid 5.26 points, or 0.33%.


Brazilian equities extended gains made in recent sessions, reaching new record highs as investors continued to bet that a six-month run of interest rate hikes might conclude shortly.


After surpassing the 27,000-point mark and then pausing in mid-February, the benchmark Ibovespa surged again last week after the central bank published notes indicating that six months of rate hikes were finally easing inflation expectations. 


In the latest economic reading, Sao Paulo’s Fipe research institute said its closely watched consumer price index rose 0.36% in February, down from a 0.56% increase in January.


That result, which was the lowest reading since October 2004, was in line with analyst estimates ranging from 0.30% to 0.45%.


In other news, Brazil’s stock exchange reported that net foreign investment flows into the local market set a monthly record in February, hitting 3.7 million reais as overseas funds built 2005 portfolios. Analysts noted that overseas investors were drawn by growth prospects for Brazil’s blue chip stocks.


On the earnings front, Brazilian phone company Telemar SA said its fourth- quarter net income fell 41% to 293 million reais from the year before amid discounts to lure mobile phone customers and higher tax payments. Still, net operating revenue jumped 16.3% to 4.27 billion reais.  The stock surged.


Brazilian mining giant CVRD said it has concluded iron ore price negotiations with European steel titan Arcelor and will hike prices by 71.5% this year.


The price rise follows CVRD’s announcement of identical increases for its steel-producing clients in Japan, South Korea, Taiwan and China.


Also, beverage giant AmBev’s company executives said they see year-on-year sales volume growth of about 10% in the first quarter and year-on-year beer sales growth of 1% to 3% in the second half of this year. A major investment house hiked its 12-month price target on AmBev shares to US$ 34.50 from US$ 30.25.


Elsewhere, Mexican shares inched higher, tracking U.S shares for the fourth time this week. Following a record closing high last Friday, Mexican shares have been mostly tracking Wall Street in a week of ups and downs.


In research news, a brokerage raised its year-end projection for the market’s key IPC index to between 15,518 and 16,520 points. Also, that brokerage reiterated its “buy” recommendation on shares of copper mining firm Grupo Mexico, while urging investors to sell Southern Peru Copper Corp.


It stated that the strong gains in SPCC shares have increased the relative value of Grupo Mexico, which owns 54% of SPCC, a stake the firm will increase with plans to merge its Mexican mining operations into the Peruvian division.


On the economic front, based on results released by the Bank of Mexico, private economists surveyed in February by the central bank lowered their inflation expectations to an increase of 3.9% this year in the Consumer Price index. That number was down from the 4% estimate provided in January.


Meanwhile, Argentine shares weakened somewhat, as investors refrained from any decisions until the government unveils the acceptance rate for its US$103 billion debt swap offer.


President Nestor Kirchner and Economy Minister Roberto Lavagna were to announce the preliminary acceptance rate figure at the presidential palace yesterday night.


Argentine equities, which leapt to record highs during the six-week exchange period, have pulled back slightly and been subject to sizable day-to-day swings following the offer’s closure on February 25.


Some analysts caution that the volatile trading environment is a sign of uncertainty in a market that has priced in an overly optimistic outlook for an 80% acceptance rate, and warn that stocks could experience a notable sell-off beginning tomorrow if the result falls shy of 80%.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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