Many equity analysts have been examining whether 2012 could be a repeat of 2011, considering global macro momentum, renewal of Euro fears, equity markets corrections, weakening emerging markets PMIs, etc. But Credit Suisse says no, that 2012 is not 2011. According to their Latin America equities research note:

“… conditions in LatAm are considerably better this time around, which should provide a better outlook for LatAm equities for the remainder of the year. These factors include: lower GDP growth expectations, much lower EPS expectations for Brazil, no monetary tightening cycle, and more depreciated local currencies.”

On GDPs…

“A year ago, consensus GDP expectations for Brazil were 4%. This implied significant downward revisions to reach the actual 2011 growth of 2.7%. In contrast, for 2012, consensus GDP expectations are more subdued at 3.2%. Our macro team is more pessimistic than consensus, expecting growth to be similar to 2011 (estimating 2.5%). If they are correct, then the level of downward revisions would still be less than a year ago. In addition, Mexico GDP growth (CS expects 3.2%) appears less vulnerable to downward revision in light of the breadth of the US recovery that is underway this year.”

On Brazil EPS …

“We also take comfort from the fact that more realistic GDP expectations are reflected in lower EPS, especially for Brazil. At this time a year ago, consensus was looking for more than 20% EPS growth in Brazil for 2011. The persistent downward revision to these overly high expectations was one of the key factors behind poor market performance last year, in our opinion. 2011 EPS in Brazil ended up only growing 11% in local currency. Mexico and Chile also suffered significant downward revisions during 2011. In contrast, expectations for 2012 have already undergone downward revisions for Brazil and Chile. “

No tightening in 2012…

“Another important difference, compared with a year ago is the more favorable inflation and monetary policy scenario. A year ago, y/y inflation in Brazil was still rising and only peaked late in 3Q11. As a result, the Central Bank was actively trying to cool the economy with a monetary tightening cycle that lasted until July 2011. This time around, inflation is decelerating in Brazil. The Central Bank has already loosened monetary policy rates by 300bps. Our macro team… recently revised their forecasts and now expects more 75bps of additional tightening in the coming months… monetary loosening historically has been favorable for EM equity markets on a one year view.

Another risk factor that is less concerning than a year ago is the more depreciated level of local currencies. Although many currency valuation models still show the BRL as overvalued, the likelihood of a major depreciation now appears less severe with the R$ at 1.90 compared to a year ago when the rate was less than R$1.60/USD. At the same time, the Mexican and Chilean Pesos are about 12% and 5% weaker than they were a year ago.”

Source: Credit Suisse

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