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Posts | 476 |
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Alias Born | 02/10/2006 |
Thursday, July 13, 2017 6:07:07 PM
I saw the cup and handle as well and doubled down in the 8's about two months ago. I now see a reverse head and shoulder pattern which could spring SBS to revisit the 2013 high. I found it helpful to review SBS performance on their website in Reals in order to discount the impact of the dollar. I think SBS could be headed from 33 to around 45 real in the next year (the right shoulder breakout). The problem is that I'm uncertain what the dollar will do as the Fed unwinds their balance sheet. QE resulted in the value of almost everything going up including Emerging market equities. As the end of QE approached in 2014 the EM and SBS tanked. They have re-awakened the last year as the dollar weakened slightly.
Conventional wisdom is that the EM will get hurt as the US continues to tighten rates causing the dollar to strengthen. I don't necessarily agree. SBS and others have restructured much of their debt into local currency. Brazilian rates look like they will continue to decline (from around 10%) thus reducing local currency borrowing costs.
Furthermore the U.S. cost of carrying $20 trillion in debt has not really changed much. The 10 year is still +/-2.3%. Several rate hikes would either push up these rates and increase debt servicing costs or could invert the curve and push the US into recession. Given the demographic backdrop of retiring baby boomers, I think we could be at the start of a secular trend where the dollar weakens. I believe this is a decent backdrop for SBS. The end of the drought, and wind down of large capitol construction projects in the next 2-3 years should also be a plus. Organic growth of at least 5% seems like a given just based on population growth. Plenty of room to expand by acquiring municipal water and/or sewer businesses in Sao Paulo. They just need to be strategic in making these acquisitions at reasonable cost.
Long winded I know, but there are very few boards with intelligent life to discuss one of my largest holdings.
Regards FL
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