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Transcript
BRAZIL: OPPORTUNITIES IN TROUBLED MARKETS LUIZ FERNANDO FIGUEIREDO FX: Are we in the 2002 path? BRL/USD FX depreciation has been even more agressive this time than it was in 2002. But there are crucial differences: 4 2.85 3.8 3.6 2.65 3.4 2.45 3.2 2.25 3 2.8 2.05 2.6 1.85 2.4 1.65 2.2 2 1.45 -3 -2 -1 0 1 2002 (LHS) 2 3 months 4 5 6 7 8 2008 (RHS) Net Public Debt as % of GDP 60.0 55.0 a) Today, Public Debt as % of GDP goes down with FX depreciation (2002 was the opposite); 50.0 45.0 2002 forecast 2008 40.0 35.0 -3 -2 -1 0 1 Months 2 3 4 5 6 7 8 2 FX: Are we in the 2002 path? CRB Cmdty Index 250 b) Less deflacionary this time, since Commodity Prices are falling; 480 245 470 240 460 235 450 230 440 225 430 2002 (lhs) 220 420 2008 (rhs) 215 410 210 400 -3 -2 -1 0 2 3 4 6 7 8 meses até a depreciação c) External Accounts are considerably more balanced External indebtedness indicators 2001 2002 2004 2006 2008 Total external debt / GDP (%) 41.2 45.9 30.3 16.1 14.0 Net total external debt / GDP (%) 31.9 35.9 20.4 7.0 - 1.1 Debt service / exports (%) 84.9 82.7 53.7 41.3 20.6 Reserves / short-term external debt 66.7 64.6 99.3 211.7 292.7 3.6 3.5 2.1 1.3 1.1 - 4.2 - 1.5 1.8 1.3 - 1.5 4.1 3.3 2.7 1.8 2.2 Total external debt/exports (ratio) Current account/GDP (%) FDI/GDP (%) 3 5 10 Sep-08 Jul-08 May-08 Mar-08 Jan-08 Nov-07 Sep-07 Jul-07 May-07 Mar-07 Jan-07 Nov-06 Sep-06 Jul-06 May-06 % p.a. Real Interest Rates Quite high by any standard Real Interest Rate (NTN-B 2015) 11 9.65 9 8 7 6 The Brazilian stock market underperformed, despite solid macroeconomic fundamentals MSCI Index avg PE 18 Foreing Cumulative Flow (since Jan/04) US$ mm WORLD EM BRAZIL 6,000 LATAM 4,000 16 2,000 14 0 -2,000 12 -4,000 10 -6,000 8 2007 2008 Total Debt / Market Cap 120% 100% Sep-08 Jan-08 Sep-07 Jan-07 Sep-06 Jan-06 Sep-05 Jan-05 May-08 2006 May-07 2005 May-06 2004 May-05 2003 Sep-04 6 May-04 Jan-04 -8,000 Even though companies did take advantage of the bull market’s abundant liquidity, they are being penalized on a relative basis. Foreign outflow is contributing to exaggerated movements. Companies are unlevered 80% 60% Brazil once again is being traded at a discount when compared to Latam, EM and World P/Es. 40% 20% 0% 2002 2003 2004 2005 2006 2007 2008 Source: Bloomberg, Economática, Bovespa Sectors, such as financial, are being excessively penalized due to the global credit crisis Brazilian banks are less exposed to the crisis because : (1) They are not exposed to the subprime market (2) There is not the issue of being “too big to be saved” Housing credit in Brazil as % of GDP 2.2% (3) Housing credit still low as % of GDP. 2.1% 2.1% 2.0% 1.9% 1.8% 1.7% 1.6% 1.5% Jul-08 Apr-08 Jan-08 Oct-07 Jul-07 Apr-07 Jan-07 Oct-06 Jul-06 Apr-06 Jan-06 Oct-05 Jul-05 Apr-05 Source: Financial Times, Company Data, Banco Central do Brasil, Mauá Consultoria Jan-05 1.4% Seeking comfort in valuation: even stress testing our base case scenario, upside is attractive MSCI BRZ - FINANCIALS 15 14 13 12 11 10 9 8 7 6 5 Stressing the scenario for one of the banks under our coverage shows that worst case equals banks trading at average historical P/E, considering maintenance of spreads. Source: Bloomberg, Company Data, Mauá Consultoria Stress Test for Bradesco 2008 Base Brazil GDP Loans growth Bad debt provision P/E ROE Upside 5.1% Aug-08 Apr-08 Dec-07 Aug-07 Apr-07 Dec-06 Aug-06 Apr-06 Dec-05 Aug-05 Apr-05 Dec-04 Aug-04 Apr-04 Dec-03 Average historical multiple: 10.9 Crisis 2009 Bear Base Bull 1.5% 2.0% 4.0% 3.0% +23% -10% 0% +10% +15% 4.8% +300bps +200bps +120bps +80bps 10.1 9.4 8.7 8.3 24.5% 19.7% 21.0% 22.6% 23.5% 1% 28% 39% 44%