[Marxism] Another BRIC about to fall

[Louis Proyect]

Brazil Stocks May ‘Capitulate’ on Economy, Citi Says (Update4)
By Roger Neill and Michael Patterson

Feb. 18 (Bloomberg) -- Brazil stocks may drop in the “next few weeks” 
because valuations climbed too high given the outlook for a “very sharp” 
recession in Latin America’s biggest economy, according to Citigroup Inc.

Brazilian shares trade for about 9.5 times estimated profits, above the 
long-term average price-to-earnings of 9, after the market rallied more 
than its developing-country peers since November, Citigroup strategist 
Geoffrey Dennis wrote in a research note dated yesterday. The benchmark 
Bovespa index has climbed 5.7 percent this year, the second-best 
performance after China among the world’s 20 biggest equity markets.

Brazil stocks will “capitulate” as the economy contracts and the U.S. 
recession lasts through the third quarter, Dennis wrote. Investors 
should wait for the Bovespa to drop below 35,000 before they buy 
Brazilian stocks, he wrote. The Bovespa lost 4.8 percent yesterday, the 
steepest retreat in a month, to 39,846.97.

“The market’s sharp fall on Tuesday is likely to be followed by further 
losses over the next few weeks,” wrote Dennis, Citigroup’s New 
York-based head of Latin America equity strategy. Shares are “likely to 
capitulate to this barrage of economic weakness at home and abroad,” he 
wrote.

‘Defensive’ Stocks

Dennis reduced his rating on Brazilian stocks to “neutral” from 
“overweight,” saying the downgrade is a “trading call.” He maintained 
his year-end target for the Bovespa at 55,000 and kept his “bullish 
long-term view.”

Within Brazil, investors should buy shares of “defensive” companies 
including utilities, phone companies and makers of consumer staples, 
while reducing holdings of raw-material producers and financial 
companies, Dennis wrote.

The Bovespa today slipped 0.4 percent to 39,674.39. Mobile- phone 
carrier Tim Participacoes SA, picked by Citigroup as a preferred 
defensive stock, increased 6.1 percent to 6.95 reais.

Dennis increased his rating on Colombian stocks to “overweight” from 
“neutral,” citing the market’s “defensive” characteristics. Colombia’s 
benchmark IGBC Index has climbed 2.5 percent this year.