Brazil telcoms recommended as best bets in a slump
Reuters, Wednesday, October 28, 1998 at 22:02
By Ian Simpson
NEW YORK, Oct 28 (Reuters) - Brazilian telephone companies
are best bets for investors amid the slump likely to follow the
introduction of a $23.5 billion austerity package announced by
the government on Wednesday, analysts and investors said.
Overall, Brazil remained a key investment target in Latin
America, they said. Even so, Argentina and Mexico were
relatively more attractive, in part because of their stability.
"We've been favoring Mexico and Argentina," said Federico
Laffan, a Latin American portfolio manager at Warburg Pincus.
"We feel they are lower-risk, lower-return type situations, but
the downside is capped" compared with Brazil.
Julie Wang, a portfolio manager at Bankers Trust, said most
Brazilian companies would suffer amid an economic downturn that
is expected next year.
"That doesn't make for a buoyant stock market," she said.
"So we're still cautious toward Brazil."
The package announced Wednesday contains tax increases,
spending cuts and other measures designed to close a budget
deficit of more than 7 percent of gross domestic product and
protect the world's No. 8 economy from turmoil that has ravaged
emerging economies worldwide.
The program also will set the stage for a possible $30
billion financial package from the International Monetary Fund
and other lenders.
The Brazilian government forecast that under the program,
the economy would grow 0.5 percent this year and shrink by 1
percent in 1999.
Laffan and other analysts said telecommunications stocks
were attractive because they offered potentially strong
earnings in a recession. Brazil has a big backlog of customers
wanting telephones.
"We're predisposed to telecoms, especially fixed-line
companies," Laffan said.
Jane Heap, Latin American equity strategist at Deutsche
Bank Securities, said blue-chip electric utilities in Brazil
also were possible investment targets.
"Markets are clearly going to remain volatile," she said.
"I would shun retail, for example, white goods, anything that
is going to be hurt by a slowdown."
Heap recommended selling into a market surge caused by an
IMF package. A senior Brazilian Finance Ministry official said
talks with the IMF about the package could be finished within a
month.
She and other analysts said it was crucial for Brazil to
trim its deficit to bring down interest rates, now at 40
percent a year.
Copyright 1998, Reuters News Service |
