Strong Ship, Rough Waters
Although the European crisis remains a potential risk for the market, as various European countries still have a fragile fiscal situation and weak economic growth, we believe there is little chance of the crisis escalating (a “full-blown” crisis being unlikely) in the short term due to the European Union’s commitment to helping weaker economies and consequently the Euro. On the other hand, we see some drivers for the market: (1) continued recovery of the US economy, which still seems on track despite some weaker economic indicators; and (2) expectations that the Chinese economy will continue to reduce its imbalances without clear discontinuity. In this scenario, we see some room for a recovery despite volatility.
In Brazil, we believe the economic scenario remains positive despite expectations that monetary tightening will continue, which should drive the Selic rate to 11.50% at YE10 and 12.50% at YE11. Our expectation is that growth should decelerate, with full-year GDP growth coming in at 6.8% for 2010 and 3.5% for 2011. We see a new administration delivering fiscal adjustment regardless of who wins the elections.
Main changes in our portfolio. In our portfolio for July, we have included BR Properties (BRPR3), Gafisa (GFSA3), Gerdau (GGBR4), Gol (GOLL4) and Marfrig (MRFG3), and excluded Brookfield (BISA3), Contax (CTAX4), Lupatech (LUPA3), Tegma (TGMA3) and Banco ABC (ABCB4).
Performance. Our recommended portfolio for June went up 3.1%, compared to -3.3% for the Ibovespa. YTD in 2010, our focus list has accumulated performance of -4.9%, compared to -11.1% for the Ibovespa.