BofA still optimistic about Brazil; recommends stocks linked to economic reopening

RIO DE JANEIRO, BRAZIL – Bank of America (BofA) strategists David Beker, Paula Andrea Soto and Carlos Peyrelongue wrote in a report that they are still optimistic about Brazil and Mexico, recommending the markets of both countries as overweight (recommended positioning above the market average) within the Latin America portfolio.

In Brazil, the American bank team sees opportunities in bank stocks, companies exposed to the economic reopening, inflation players and some internationally positioned names, such as Petrobras (PETR3; PETR4), JBS (JBSS3) and WEG (WEGE3).

“In Brazil, credit expansion is at a good pace, while asset quality and spreads are stable, and coverage rates are near all-time highs,” the experts write.

Regarding Vale (VALE3), BofA sees the stock as market weight (recommended placement within the market average), due to the assessment that concerns over lower Chinese demand are priced in. In addition, analysts point out that the bank’s economic team is seeing signs that the Chinese government will implement stimulus measures.

On the other hand, the BofA team is underweight (positioned below the market average) in assets impacted by the basic interest rate, as the Central Bank is in a process of tightening monetary policy.

BofA also recommends exposure to shares of companies exposed to the economic growth cycle, such as e-commerce and means of payment companies. Analysts point out that these stocks have underperformed the market average in recent months because higher discount rates have impacted longer duration stocks. However, they say they are holding these assets in their portfolio “as they remain optimistic on the long term.”

In this reopening argument, there is room for traditional retail companies and mall managers. Lojas Renner (LREN3) and Natura (NTCO3) are cited in BofA’s Latin American portfolio, and Grupo Soma (SOMA3) and Multiplan (MULT3) in the portfolio of Brazilian assets.

In fuels, Raízen (RAIZ4) was included and Cosan (CSAN3) was removed from the bank’s portfolio.

In insurance, BB Seguridade (BBSE3) was included in the portfolio, which analysts justified by the improved economic activity, better financial results from the company due to higher interest rates, and normalization of loss rates.

For the higher inflation scenario in Brazil, BofA sees opportunities in Hypera (HYPE3) and supermarkets. The bank’s Brazilian portfolio included Assaí (ASAI3), because the food retailer is heading towards the cash and carry segment and excluded Carrefour (CRFB3).

Braskem (BRKM5) was also added for its better margins in the petrochemical sector.

With a less positive outlook ahead, Localiza (RENT3) was removed from the American bank’s portfolio due to constraints in vehicle supply (arising from the global crisis in the supply of semiconductors), the cost of inflation and higher interest rates.

In short, the bank added to its recommended portfolio for Brazil: WEG, Raízen, BB Seguridade, Assaí and Braskem. On the other end, analysts removed Localiza, Cosan and Carrefour.