Despite the overhang of Petrobras, elections and some ambivalent manufacturing numbers, Brazilian stocks have been holding up remarkably well. Part of the appeal here is that Brazil is arguably the best diversified emerging market. There are resource plays like those Russia is full of -- Petrobras (PBR) is only the biggest -- as well as a thriving domestic consumer sector.
Although the recent PMI numbers showed an industrial contraction underway, the headline GDP is still growing at a torrid rate and the fourth quarter looks extremely promising. The overall Brazilian market is also attractively priced at a 10.3 forward P/E and 22% to 23% EPS growth. Expect locals to rotate out of domestic names and definitely out of other oil stocks in order to make room for PBR's huge share sale this month -- assuming of course that the offering is priced at a reasonable discount. Beyond the rotation issues, financials and retail names should continue to be the best bet. ITUB and BSBR. Fade out a little on ABV , which has had a big run.
Watch the airlines and airports in the wake of the LAN LFL and TAM merger. GOL is an obvious odd man out here. In general, good times for the Brazilian economy may continue to support the real despite the government's hopes and threats. Until we get firm signals that the new government will act to restrain its currency (i.e., until after the October election), there is no reason to suspect the real will significantly depreciate. This is a bullish near-term sign for BZF: