Brazil on track for more stock market gains

Brazil’s stock market, this year’s best performer in the Americas, is forecast to extend its record-setting rally in 2020.

The Ibovespa index will climb 15% to close to 131,900 by the end of next year, according to the average estimate of 10 strategists surveyed by Bloomberg. That would mark a fifth straight year of gains, on par with the 2004-07 stretch as the longest run of positive returns on record.

Underpinning confidence among prognosticators is a string of data showing growth in Latin America’s largest economy may be accelerating. With interest rates sitting at a record low and a more market-friendly agenda seen moving forward in Congress, all is bound to encourage Brazilians to take on more risk, strategists say.

“We continue to see room for the Brazilian market to rerate on lower cost of equity (supported by reform momentum, low interest rates and fresh flows from international and domestic investors),” Itau BBA’s strategists led by Pablo Ordonez wrote in a report earlier this month.

The Ibovespa index has advanced 31% this year, driven by early signs of a pickup in growth and progress in the government’s efforts in tackling a long-awaited social security overhaul. Data from this month showed gross domestic product expanded more than forecast in the third quarter and the pace of formal jobs creation accelerated last month.

“Brazil has one of the best short-term cyclical quadrant combinations for equities: accelerating GDP with controlled inflation,” Santander’s strategists led by Daniel Gewehr wrote in a report earlier this month. “Although the asymmetry is less attractive after a robust performance, we believe the Brazilian market should test higher multiples.”

Earlier this month the Ibovespa index traded at 13.4 times forecast earnings, the highest multiple in almost two years, data compiled by Bloomberg show. In U.S. dollar terms, the index is still 33% below its all-time high set in 2011.

Bradesco BBI, whose 2020 forecast of 139,000 is the highest of all, expects demand from foreign investors to help absorb equity offerings over coming months. Gilson Finkelsztain, the chief executive officer of B3 SA - Brasil Bolsa Balcao, Brazil’s sole stock exchange, said this month that the firm expects about 20 to 30 share sales next year.