Credit Suisse Cuts Brazilian Stocks as Wishful Thinking Is Not EnoughBy , , and
’We have run out of motivation’ to own Brazil as overweight
Equity index has climbed 63% in dollars in last 12 months
Investors’ unabated enthusiasm for Brazil is starting to show some cracks.
About a year after upgrading the country’s stocks to buy, Credit Suisse Group AG is telling investors to take profits based on 10 reasons that basically boil down to the idea that the rally has gotten ahead of fundamentals. Credit Suisse says the real is overvalued, growth forecasts are underwhelming and equity valuations are too high.
"We have run out of motivation to own the market at an above-benchmark weighting," analysts Alexander Redman and Arun Sai wrote in a note to clients. "All that’s left is momentum and wishful thinking."
Brazilian shares are up 63 percent in dollar terms in the past 12 months, leading gains among the world’s major stock gauges even after a recent pullback. The jump comes after years of underperformance and as investors bet President Michel Temer will succeed in implementing an agenda to shore up fiscal accounts and pull Brazil out of the worst recession in a century.
And while big investors like Fidelity and BlackRock Inc. both say they still see value in Brazil, Credit Suisse contends that valuations “appear rich.” The central bank’s accelerating pace of interest rate cuts amid slowing inflation has helped boost stocks further this year -- but that’s already priced in, according to the bank’s analysts. Redman and Sai say corporate earnings estimates are too high and that there’s unlikely to be big gains in prices for the commodities that make up most of Brazil’s exports.