Just a reminder…
Earlier this year, the “smart money” in Brazil made their bets on how the Bovespa would perform in 2012 (see table below from Exame magazine). According to the forecast put by BTG (“The Brazil-version of Goldman Sachs“), for instance, Bovespa could end this year at 80,000 points. In other words, Bovespa must rally about 50% from its current 54,000 points to make their call about right. What’s the likelihood?
Also according to the table below, Santander Corretora last year forecast Bovespa at an absurd 89,000 points while the Brazilian stock market index ended at about 57,500. Their guess was as close to throwing a dart randomly on a board, or just as accurate as simply asking your child to pick a number between 30,000 and 120,000. Hence, we awarded them a symbolic Oscar of “outrageous predictions.” But as you can see below, Santander was not alone (though it was the most absurd). Someone else was pretty close.
Will Landers, for example, a respectable fund manager who oversees BlackRock’s $800m Latin America fund last year bet that Bovespa was going to reach 85,000 (really, Will?). Here is what he told Bloomberg one year ago:
“The last five months were not what we were expecting, but (economic) fundamentals have not deteriorated. We are at an interesting ‘buying’ point. With the recent slide, the return potential has become interesting. I’m not changing my expectations for the index to reach 85,000 by the end of the year.”
Simply said, his “buying point” would have made you loose almost 20% between then and now. Landers went further and said he considers Brazilian stocks among the most attractive among both emerging and developed nations. Well, now, one year later he told FT that he has been trimming back holdings in Brazil in recent weeks. A classic case of buy high sell low.
Another recent “off” forecast was made by HSBC’s Pedro Bastos, who predicted Bovespa beyond 75,000 by year’s end. Here is what he told Exame magazine a couple of months ago:
“The market still hasn’t recovered to where we were in 2010, so when you look at Brazil, it still seems a very attractive market. The government is trying to make local interest rates converge down with the Latin American average. So there is still a lot of room to cut rates and that will boost the migration of local investors [from bonds] to the equity market.”
In normal times, moves by Brazil’s central bank to aggressively cut its policy interest rate should provide support for the stock market as it spurs consumption and low bond yields make equities look more attractive in terms of valuation. Yet (the FT reports) Brazil’s rate cuts appeared to have the opposite effect of what Pedro & co expected, with investors interpreting the cuts as panic moves against the country’s stagnating economy. All in all, the market will have to rally about 35% from now until year’s end in order to meet his prediction. It is surely not impossible, though unlikely.