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Brazil's Bovespa ripe for rebound but weak sentiment weighs -HSBC
April 18, 2013 / 3:47 PM / 4 years ago

Brazil's Bovespa ripe for rebound but weak sentiment weighs -HSBC

* HSBC says current Bovespa loss longest in two decades

* Bovespa pricing attractive but overhang weighing down

SAO PAULO, April 18 (Reuters) - The longest streak of losses in Brazilian stocks in two decades is leaving share prices ripe for a rebound, but investors are still concerned to jump in because of concerns about high inflation, state interference in some sectors and weak economic growth, HSBC Securities strategists said on Thursday.

The current correction cycle, which has lasted 15 weeks, pushed the benchmark Bovespa stock index down 16 percent, below the average 22 percent drop for the 19 overall market declines on record since 1993, strategists led by Ben Laidler said in a note. During that period, downturns lasted only seven weeks in average.

The numbers could suggest that either the current correction still has some room to go, or that buyers at this point could reap fat rewards when the market recovers.

Even as the cycle looks poised to go positive, meaning that the Bovespa could at some point reverse the current losses, the structural problems afflicting Brazil’s equity market could persist, the note said.

According to Thomson Reuters data, Brazil is currently the world’s worst-performing stock market so far in 2013. Even with the Bovespa shedding 14 percent of its value since the start of the year, the market is trading at about 11 times estimates earnings - suggesting that valuations have remained resilient.

“This correction has, unusually, been driven more by domestic Brazil policy concerns than by external volatility,” Laideler and his team said. “Brazil remains a counter-consensus cyclical story to own, in our view, even if the structural story is very difficult.”

The report highlights the delicate balancing act facing investors in Latin America’s largest economy, where sentiment remains weak after two years of below-trend growth, signs of fatigue in the government’s growth model and rising regulatory noise in a number of industries. Investment inflows into the stock market, however, remain strong due the nation’s status as an emerging economic powerhouse that is home to about 200 million consumers.

The index seesawed on Thursday, and was largely flat at 52,860.35 at noon local time (1500 GMT). The Bovespa has fallen for four of the past six sessions.

This year’s tumble in the Bovespa, where commodities-related stocks represent more than half the index, has been exacerbated by a global rout in oil, energy and mining stocks. Brazilian equity markets have over the past few years become more correlated to China, Brazil’s largest trading partner and the buyer of most of its food and mineral exports.

According to Laidler and his team, Brazil stock market investment sentiment should improve as a mild economic recovery is underway and a year-long decline in earnings expectations began to stabilize recently. (Reporting by Guillermo Parra-Bernal Editing by W Simon)

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