Brazil’s Equities Remain Expensive Amid Earnings Slump, UBS Says

Brazilian equities are expensive and will probably underperform other developing nations as corporate earnings remain in the doldrums, according to UBS AG.

While stocks have tumbled to the cusp of a bear market, UBS analyst led by Bhanu Baweja wrote Thursday in a research note to clients that Brazilian shares are poised to fall further as they trade above long-term averages. Another concern, according to the Zurich-based bank, is the lack of companies that can help propel broad equity gains.

“With earnings growth having been negative since 2011, and prices having adjusted less, the market remains expensive,” the analysts wrote. Brazil is “not close to trough valuations in equities.”

Stocks are trading at 11.7 times earnings, compared with 5.8 times in bear markets in January 1999, October 2002 and October 2008 and the 17-year average of 10, UBS said.

The benchmark Ibovespa index approached a bear market Thursday, extending its slump since May 5 to 20 percent as Banco Bradesco SA and the state-controlled oil company Petroleo Brasileiro SA fell.

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