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Investors ought to maintain exposure to Brazilian shares that help them hedge against policy uncertainty and inflation or pay high dividends, analysts at Bank of America Merrill Lynch said on Friday. A basket of so-called defensive stocks in sectors such as utilities and commercial property has outperformed the benchmark Bovespa stock index by 14.5 percent, despite concerns on higher interest rates.
Combining implied rates of returns with stock performance, shares of shopping mall operator BR Malls SA and property company BR Properties SA "screen positively as stocks to add exposure to the defensive sector in Brazil," strategist Felipe Hirai wrote in a client note. Teléfonica Brasil SA and Cia Energetica de Minas Gerais SA are also expected to pay dividend yields above average borrowing costs in Brazil, Hirai added.
According to Hirai, investors should add exposure to both companies since their stocks are down 11.5 percent and 13.5 percent this year, respectively, mostly on "concerns of higher rates, vacancies and weaker Brazilian consumers, and now imply an internal rate of return of 12 percent to 14 percent, compared with average 10 percent for the utilities sector," the note said.