Brazilian banks rallied in Sao Paulo after JPMorgan Chase & Co. and Credit Suisse Group AG said they may benefit as policy makers start raising interest rates.
Banco Bradesco SA gained 2.2 percent to 34.31 reais at 3 p.m. New York time, after JPMorgan analysts Emy Shayo Cherman and Ben Laidler said the “hiking cycle” may lift the lender’s insurance revenue. Credit Suisse raised banks to “overweight” in a recommended list of Brazil stocks, saying higher borrowing costs will boost earnings while failing to stem credit growth, according to a note to clients.
“Tightening should have a favorable impact on earnings over the medium-term without impeding strong credit growth,” Andrew T. Campbell, an analyst at Credit Suisse in Sao Paulo, wrote yesterday.
Policy makers will raise the benchmark interest rate to 12.25 percent next year from 10.75 percent now, according to the median estimate in a central bank survey of about 100 economists published Nov. 29. Banks are the second best-performing industry in Brazil in the second half, with the MSCI gauge of financial stocks up 34 percent since June 30, compared with a gain of 35 percent for the industrial index and 14 percent for the benchmark Bovespa.
Campbell, of Credit Suisse, says investors should buy Itau Unibanco Holding SA and Banco do Brasil SA. The JPMorgan analysts name Bradesco and Banco Santander Brasil SA as their “top 10 picks” in Brazil, according to a report yesterday.
Santander gained 4.5 percent to 23.14 reais, while Itau climbed 2 percent to 40.01 reais. Banco do Brasil rose 2.6 percent to 33.77 reais.
While Credit Suisse recommends cutting holdings of stocks that “may face headwinds during tightening,” JPMorgan said industries such as real estate may extend gains.
“While domestic names have tended to underperform before a first interest rate hike, the global scenario doesn’t seem favorable to commodities,” wrote Cherman and Laidler. “We continue to recommend an overweight position in domestic sectors.”