Going Nuts for Brazil’s Stocks

Brazil’s stock market is leaving the rest of Latin America behind.

A rally this year that’s captured the attention of investors worldwide has catapulted daily trading on the Sao Paulo Stock Exchange into the ranks of the world’s most active markets.

In June, an average of $1.1 billion worth of shares changed hands each day, nearly triple the amount for all other Latin American stock markets combined. At this monetary volume, daily trading is on par with that of Canada or Hong Kong.

“Mexico and every other Latin American country has become a sideshow for Brazil,” said Vinod Sehgal, head of Latin American equity research at banking firm Societe Generale in New York.

The attraction is a rally that has boosted the benchmark Bovespa stock index more than 80% since Jan. 1, making it the world’s fastest riser outside Russia.

Brazilian investors have poured an estimated $5 billion into stock mutual funds over a period of nearly two months in a desire to cash in on the trend.

“The retail investor is becoming a major player in Brazil for the first time,” said Fabio Oliveira, who manages $400 million in equities at BankBoston’s Brazil unit. “That is the big difference from previous run-ups in the market.”

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The rally also has piqued the interest of foreign fund managers, generating the intensity of interest once given to Mexico or the “tiger” economies of Southeast Asia.

Volume has taken off, rising particularly steeply since mid-April. June’s $1.1-billion average daily turnover is twice January’s daily average, and almost three times the $388-million average for 1996. As recently as 1993, daily turnover amounted to $153 million.

The rise has put Brazil into the big league of world markets. According to market researcher Birinyi Associates, the average daily volume for the Toronto Stock Exchange this year is about $1.07 billion and is $1.17 billion for Hong Kong.

Inflows of foreign money and activity generated by the government’s ongoing privatization of state assets deserve some of the credit for the Brazilian rally. But the real force, according to fund managers, is local small investors who have caught equity fever.

Brazilians’ appetite for stocks has increased not only because of the market’s spectacular performance of late, but also because returns on fixed-income investments have been declining as inflation has tumbled. There has been a mass migration from fixed-income funds into stock funds.

According to Dalton Gardiman, an economist at Deutsche Morgan Grenfell in Sao Paulo, stock funds’ total assets jumped to $17.4 billion by June 19, triple the level of a year ago.

Most analysts expect the trend to continue. With less than 15% of total Brazilian mutual fund assets invested in equities, there may be plenty more fuel to fire the stock market’s growth.

“Do I see them [stock fund assets] doubling to $30 billion in the next 12 months? Definitely,” Oliveira said.

Last week, fund managers talked about nothing else except the avalanche of new money. Some sounded as if they were being buried under “buy” orders.

“I have to invest 5 million to 10 million reals [Brazilian currency] every morning, and if I don’t have something to buy, I go straight for the blue chips,” said Flavio Menezes, who manages $350 million at Banco Patrimonio de Investimento.

That was Monday of last week, when the Bovespa index rose 1%.

“The inflow of money just keeps coming,” said Fabio Giuliano, a trader for Deutsche Morgan Grenfell’s Brazilian unit.

That was last Tuesday, when the market rose 2.8%.

“Money is moving from fixed

income to stocks, and the movement is intense,” said Luiz Carlos Pires, who manages $9 million in equities for Agenda Brokerage.

“With these inflows of investment, everything is going up.”

That was Wednesday, when the Bovespa index jumped an additional 3.7%, the third-biggest one-day rise of the year.

“Nobody’s following New York or any other indicators--it’s just a lot of money coming in that has to be invested,” said Marcelo Guterman, who manages $150 million in equities for Lloyds Bank.

That was Thursday, when the Sao Paulo exchange hit a new regular-day (excluding option-expiration days) volume record of $1.6 billion.

The Bovespa index has fallen in the last few days. Still, it rose more than 10% in June and more than 80% this year.

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Brazil Options

Here are some individual Brazilian stocks and Brazilian closed-end stock funds that trade on the New York Stock Exchange.

INDIVIDUAL STOCKS

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Ticker Monday Name symbol close Telebras TBR $151.88 Unibanco-Uniao UBB 37.13 Brasil Distrib. CBD 22.75 Brahma BRH 15.31

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CLOSED-END FUNDS

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Ticker Monday Name symbol close Brazil Fund BZF 30.75 Brazilian Equity BZL 17.25

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Source: Times research