The Case For “Bargain” Brazilian Stocks

The Case For “Bargain” Brazilian Stocks
Andrew Rummer

over 2 years ago1 min

Brazilian stocks are looking very attractive thanks to growing profits, improving economic indicators, and cheap valuations, according to a report this week from investment firm Richard Bernstein Advisors

As the top panel in the chart above shows, the “forward” price-to-earnings (P/E) ratio for Brazilian stocks – how much they cost versus expected future profits – has dropped much faster than for stocks in China, the world’s largest emerging market. The lower panel shows how optimism on Brazil’s economy – indicated by the manufacturing purchasing managers' index (PMI) – is also looking much rosier. 

“Sharply accelerating profits, supportive leading indicators, and bargain valuations make Brazil and Latin America overall seem very attractive,” RBA concludes. “We anticipate that as Brazilian companies deliver on strong earnings growth, investors will become increasingly constructive on their equity prospects.”

Not everyone agrees with RBA’s assessment, however. Brazil’s economy and markets have been hit hard by the coronavirus pandemic and a recent drought. And a separate report from research firm TS Lombard on Thursday warned of accelerating inflation, power supply issues, and political uncertainty ahead of next year’s bid for re-election by President Jair Bolsonaro.

“Apparently aware that his re-election bid is becoming increasingly more difficult, Bolsonaro will continue to make waves ahead of the 2022 elections through populist moves,” TS Lombard wrote. “This means political uncertainty will persist, as will the President’s attacks on democratic institutions.”



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