RIO DE JANEIRO, BRAZIL – Strategists highlighted a revision in their projections for Brazil’s GDP, from a high of 3.4% to 5.2% in 2021, pointing out that there is still a positive expectation.
With more positive expectations for the Brazilian economy and adding exposure to assets that benefit from the reopening of activities and banks, Bank of America’s strategy team raised its exposure rating for Brazilian stocks, going from marketweight (exposure in line with the market average) to overweight (exposure above the market average) within the Latin America portfolio.
David Beker, Carlos Peyrelongue and Paula Andrea Soto, part of the American bank’s strategy and analysis team, highlighted the revision in their projections for the Brazilian GDP, from a high of 3.4% to 5.2% in 2021, pointing out that there is still a positive expectation.
While raising Brazil, they reduced the recommendation for Chile from overweight to underweight (below average exposure) after the constitutional elections’ results. The strategists maintain an overweight recommendation for Mexico, because of its correlation with the U.S. economy, in addition to seeing less upside risks to inflation and interest rates. The electoral result in Mexico, with less support for the agenda of President Andrés Manuel López Obrador, was also seen as positive.
Regarding Brazil, Beker, Peyrelongue and Paula point out that the focus is on reopening through high-quality names, saying they like traditional retail, fuel distribution, construction and payments.
In the portfolio for Latin America, they added the shares of Natura (NTCO3), which were already in the Brazil portfolio. In addition, they raised the exposure to large banks already in the portfolio, such as Itaú (ITUB4), Bradesco (BBDC4) and also Banco do Brasil (BBAS3) due to macroeconomic recovery signs, improving earnings dynamics, cheap valuation and below-market performance since the start of the pandemic.
“Although reopening and bank cases have largely recovered in the past month, they continue to lag behind in comparison to the prices at the beginning of the pandemic,” they assess.
On the other hand, they remain more cautious with riskier sectors such as services, airlines and shopping malls. They also added exposure to Brazil’s economic recovery through Energisa (ENGI11) and removed BRF (BRFS3) after the recent strong rise.
Beker, Peyrelongue and Paula also say they continue to like inflation-related cases as the world reopens, such as commodities, Hypera (HYPE3) and Carrefour (CRFB3).
In addition, they maintained allocation to Vale because of valuation, while they have exposure to oil through Colombian Ecopetrol and have also added Brazilian Petrobras (PETR4) as they assess that the political noise will subside. Seeing no near-term catalysts, BofA removed exposure to the pulp and paper sector, excluding Brazilian Klabin (KLBN11) and Chilean CMPC.