Some Brazil Sectors Still At Risk Despite Forex Shift-Deutsche Bank
01 Junho 2012 - 5:15PM
Dow Jones News
Some sectors of Brazil's economy could continue to face the risk
of a slow recovery ahead despite improved foreign-exchange market
conditions for local companies, strategists at Deutsche Bank said
Friday.
In a research report titled "Latam in the Shadow of the Eurozone
Crisis," Deutsche Bank said traditionally reliable plays in the
Brazilian market such as the materials and banking sectors could
see difficulties owing to depressed commodities prices and
financial fallout from events in Europe.
"Ultimately, financial and commodity stocks will be most
impacted by a Europe meltdown as well as more leveraged companies
dependent upon external financing with short-term maturities," the
bank said.
The industrial sector, however, should maintain some resilience
as the Brazilian government seeks to protect local jobs and income
in an environment of global turbulence.
"We continue to see Brazilian industrials as benefiting from
government policy, a shifting macro environment with a weak real,
falling rates and compelling valuations," Deutsche Bank said. "Our
favorite names include Embraer (ERJ), Iochpe (IOCJY), Randon
(RAPT4.BR), and Mahle Metal Leve (LEVE3.BR)."
Falling Brazilian interest rates should also encourage proxies
for fixed-income investments, such as utility sector investments in
companies like Cemig (CIG), Light (LIGT3.BR) and AES Tiete
(GET14.BR).
Deutsche Bank, however, cautions investors not to get too
excited over the potential for strong gains on cheaply valued local
shares in dollar terms as the government and central bank, it
notes, are likely to defend the current exchange rate of around two
Brazilian reais to the dollar through market intervention such as
swap auctions.
-By Gerald Jeffris, Dow Jones Newswires; +5561-9162-7863;
gerald.jeffris@dowjones.com
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