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Latin Stocks May Rise 25% by Yearend, Paiva Says (Update1)
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By Fabio Alves

April 6 (Bloomberg) -- Latin American stocks may rise as much as 25 percent by the end of 2009 and investors should start buying commodity shares now as they will benefit most from a global recovery, Deutsche Bank AG’s Guilherme Paiva said.

“The time to be underweight commodities has passed and, as Latin America is a commodity-rich region, we’re more optimistic for the outlook for this market,” Paiva, the head of Latin America equity strategy, said in an interview in New York.

The strategist increased his allocation for commodity stocks to “neutral” from “underweight,” saying the U.S. government’s plans to rid financial firms of toxic assets will spur the economic rebound. He favors steelmakers and pulp producers over mining and energy stocks based on valuations.

The Reuters/Jefferies CRB Index of 19 commodities slid 4 percent in the first quarter, after plunging 53 percent in the second half of 2008, as a recession in the U.S., Europe and Japan deepened and demand for raw materials slumped as credit losses mounted.

The MSCI Latin America Index has jumped 30 percent from this year’s low of 1,827.77 on March 2 on speculation the U.S. bailout plan will revive economic growth. The Obama administration plans to remove more than $1 trillion of toxic assets from the books of country’s banks and pledges from rich nations to rescue the global economy have boosted stocks.

“If fundamentals in the U.S. start to improve during the summer and the plans to resolve the banking problems are successful, investors would rather be in the region’s stock markets earlier than later given that a potential rally could occur,” he said.

Brazil Stocks

Brazilian stocks are the biggest “overweight” in Deutsche’s Latin America recommended equity portfolio, meaning investors should hold a greater percentage of the shares than contained in the benchmark index.

“Brazil is the one most leveraged to global growth and, if our global economic scenario plays out, commodities players will benefit directly and commodities dictate the cycle of the Brazilian economy,” Paiva said.

Among companies that benefit from domestic growth, Paiva advised buying Brazilian fixed-line phone operators as well as real estate developers and retailers.

Paiva predicts Brazil’s central bank may lower the benchmark lending rate to below 9 percent this year from the current rate of 11.25 percent as the economy slows. Deutsche Bank forecasts the Brazilian economy to contract 1 percent this year, before rebounding to a 3.5 percent expansion in 2010.

The Bovespa climbed 7.2 percent in March, capping its biggest quarterly advance since 2007. The measure has gained 6.8 percent this month.

Regional Outlook

Mexican stocks are also “overweight” in Deutsche’s Latin America recommended equity portfolio, while Chilean equities have a “neutral” rating and Argentina and Andean countries are “underweight.”

“Latin stocks have had a nice rally, but we’ve been in a trading range for the past eight months,” Paiva said. “We may well go through some healthy consolidation in the next three weeks, but if fundamentals continue to improve and the U.S. Treasury toxic asset plan is successful, then the outlook for commodities prices is brighter.”

To contact the reporter on this story: Fabio Alves in New York at [e-mail].


http://www.bloomberg.com/apps/news?pid=20601086&sid=aO9KFH9NNllE&refer=latin_america