Exchange breaks record waiting for flood of foreigners
DCI - 05/05/2008
The São Paulo Stock Exchange (Bovespa) broke the barrier of 68 thousand points during Wednesday's trading session after the announcement that Brazil had received the investment grade from Standard & Poor's. The Ibovespa, main index of the São Paulo Stock Exchange, ended the day in the historical mark of 67,868 points, above the previous record of 65,790 points, from December, 2007. The high in the São Paulo Stock Exchange was 6.33%, the greatest since October, 2002, when the Ibovespa went 6.34% up. In the maximum level achieved on Wednesday, the index reached 68,037 points. The record mark reached on Wednesday was the first of the year, but the index gains strength to test new barriers. For the Souza Barros brokerage company, the Ibovespa could even reach 78 thousand points, but with the investment grade, this base may reach 85 thousand points. "The investment grade gives Brazil greater credibility, increasing the flow of foreign capital. It is obvious that this mark has to be reevaluated, but I believe the Ibovespa can reach or even surpass 85 thousand points", affirms analyst of the brokerage company, Clodoir Vieira. That happens because the rating is based on each company's potential for valuation, which may increase after receiving the investment grade stamp. Companies like Petrobrás and Vale do Rio Doce have already gotten the seal granted by the risk assessment agencies, the so-called rating agencies. "Obtaining the seal improves the level of risk of the Brazilian companies, making it easier for the raising of capital at lower interest rates", says Márcia Dessen, partner of Bankrisk - a consulting company. According to her, the strengthening of the São Paulo Stock Exchange must significantly value the shares of the Brazilian companies. Nevertheless, volatility tends to remain during the year, subject to the news of the foreign market and to the North American subprime crisis. Should foreign investors currently prefer the blue chips, the search for greater profits might motivate the search for commercial papers that may be undervalued such as, for example, those from second tier companies, the small caps, which would bring greater liquidity to this market. Brazil may draw major institutional investors, such as pension and sovereign funds from developed countries that, due to the rules from their bylaws, may only invest in countries presenting low risk. Arbitrage transactions can be fairly advantageous at this moment, especially for the foreign investor, stimulated by the increase in the difference between the Brazilian interest rate, currently at 11.75%, and the North American, currently at 2.0%. While the Federal Reserve reduced the interest base rate on Wednesday, the Monetary Policy Committee (Copom) of the Brazilian Central Bank has recently increased the Selic. In the case of the foreign companies, the alternative that arises with the receipt of the seal is the direct investment in private equity funds or works aimed at the infrastructure, such as highways and waterways. "When Mexico received the seal from the rating agencies, there was a real estate boom there, since the banks had access to long term capital", says Jose Luiz Rossi Júnior, macroeconomics professor from Ibmec São Paulo.