- The global commodity price outlook has improved and we expect prices to remain supported moving ahead. This is a big plus for Brazilian equities given the boost to macro recovery and corporate earnings.
- Earnings estimates have been revised significantly higher with headroom for further upgrades. Earnings are expected to hit an all-time high in FY22, setting up a strong fundamental narrative for a further rally.
- With greater clarity in recent months, we believe political risks have subsided and the election outcome is less of a headwind for equities. Valuations are also compelling, trading at more than 40% discount to the historical average.
- Overall, Brazilian equities are a high-risk high-reward play. We project an upside potential of 75% (by end-2024) but acknowledged the risks present. With a rosier equity outlook and stronger upside potential, we upgrade Brazilian equities from 3.0 Stars to 3.5 Stars “Attractive”.
Chart 1: After a lackluster 2021, Brazilian equities started the year with a bang

Stronger global commodities price outlook supportive for equities
Chart 2: Stronger commodity prices often drive Brazil’s export value

Chart 3: Stronger commodity prices also boost Brazil’s EPS growth

Robust earnings revision and improvement in earnings outlook
Table 1: Earnings estimates for 2022 – 2024

Source: Bloomberg Finance L.P., iFAST Estimates, iFAST compilations.
Data as of Apr 22.
Political risks have subsided
Valuations at a steep discount
Chart 4: Valuations went from cheaper to cheap after the recent rally

A mixture of global, macro, and political risk in the way
Chart 5: Inflation data is the steepest since late 2002

Upgrading Brazilian equities, a high-risk high-reward play
Chart 6: Earnings forecast and price performance of Bovespa Index

Table 2: EPS and upside projection for Bovespa Index
|
Brazil (Bovespa Index) |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
|
PE ratio (X) |
6.8 |
6.9 |
7.2 |
7.1 |
|
Projected earnings growth (YoY %) |
454% |
6.5% |
-3.8% |
0.5% |
|
Projected Earnings Per Share (EPS) |
15121 |
16100 |
15490 |
15560 |
|
Target fair price (Based on 12.5X Fair PE ratio) |
- |
- |
- |
194,000 |
|
Potential upside (%) |
- |
- |
- |
75.0% |
|
Source: Bloomberg Finance L.P., iFAST estimates. Data as of Apr 2022. |
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