Traders Confounded by 180% Surge in Brazil’s Homebuilders

Updated on
  • PDG, Rossi said they’d restructure debt amid recession
  • Slumping demand for new homes may deepen industry’s woes

The breathtaking surge in Brazil’s troubled homebuilders has traders scratching their heads.

Shares of PDG Realty SA and Rossi Residencial SA -- which last year announced plans to restructure debt in the midst of a recession that has throttled demand for new homes -- have each jumped at least 180 percent since Jan. 1. That compares with a gain of just over 8.2 percent for the benchmark regional stock gauge.

But if you ask investors to pinpoint the catalyst for such outsized gains, they’ll acknowledge they’re at a loss. Bernardo Rodarte, who oversees about $310 million at Sita Corretora, says some traders may be speculating that the companies will benefit from an easing in the political turmoil that’s frustrated efforts to revive Latin America’s biggest economy or signs that policy makers are prepared to slash interest rates. But he’s quick to point out that those are far from compelling reasons to pile into the homebuilders.

“It is indeed a bit baffling to us why these stocks are advancing so much,” he said from Belo Horizonte, Brazil.

He isn’t the only one who finds the rally largely inexplicable.

Vitor Suzaki, an analyst at Lerosa Investimentos, says that while any positive news has an outsized effect on the companies’ stocks given how cheap they are, there are few reasons to be optimistic.

PDG, based in Rio de Janeiro, traded at just 3.35 reais ($1.1) as of 2:20 pm in Sao Paulo, after enduring six consecutive years of losses. Sao Paulo-based Rossi has fallen every year since 2010, plunging to as low as 1.96 reais last year from a peak of more than 700 reais in 2007.

There are good reasons to be skeptical about the stock jump as well as the companies’ future prospects. Home sales in Brazil sank 9 percent last year through November, according to the latest available data from the national real estate institute. Also, economists surveyed by the central bank recently cut their 2017 growth forecasts while the International Monetary Fund warned of near-stagnation this year.

The grim backdrop explains why debt-laden PDG and Rossi have two sell recommendations each and no buys or holds, according to data compiled by Bloomberg. That puts them in a league of stocks with the worst recommendation consensus among more than 300 Latin American companies.

PDG and Rossi didn’t reply to requests for comment.

“There really doesn’t seem to be a strong enough reason for such impressive appreciation,” Lerosa Investimentos’s Suzaki said from Sao Paulo.

— With assistance by Aline Oyamada

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