Real deal: Brazil stocks could rise 70% next year, says analyst

Brazil's stock market may surge as much as 70 percent to a record by the end of 2011 as low interest rates worldwide and “reasonable” valuations lure investors, according to JPMorgan Chase & Co. The nation's benchmark Bovespa Index may climb to 122,000 next year in JPMorgan's “positive” scenario that assumes “risk-free” interest rates remain low, Ben Laidler, a strategist for the bank, wrote in a report today. The rally may be driven by a pickup in foreign inflows, along with the removal of “overhangs” including the world's largest share sale by Petroleo Brasileiro SA in September and last month's presidential election, Laidler wrote. The Bovespa has climbed 3.8 percent this year to 71,195.16 yesterday, trailing a 14 percent gain in the MSCI Emerging Markets Index. Laidler advised holding “overweight” positions in Brazilian stocks relative to the country's weighting in the MSCI EM Latin America Index of regional shares and said investors should focus on companies that rely on domestic demand such as financial firms and homebuilders. “Macro fundamentals are robust,” Laidler wrote. Credit conditions are very supportive and “valuations are not stretched,” he said. The Bovespa may fall 14 percent in JPMorgan's “cautious” scenario that assumes earnings decline, according to the report. The MSCI EM Latin America Index of regional shares has an “upside” of 53 percent through 2011 and a potential “downside” of 14 percent, Laidler wrote.