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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Rock who wrote (19257)	6/7/2004 9:42:16 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78570

I still like the Brazilian telecoms TRO and TSU (TND). TND and TSU will be one company going forward with TSU being the surviving entity. Merger looks OK to me based on current valuations. With any foreign investment and specifically with volatile emgerging markets, exchange rates are a concern. At the current exchange rates, I consider the real to be at about fair value relative to the US$. Unless there is economic or political upheaval (which is always a possibility) I don't see any reason why the exchange rate should change much. The inflation in Brazil is low by historical standards, so interest rates may come down further. Exchange rate changes do not change the underlying value of stocks per se, except for inn the very short term. the big trouble usually comes from debt that is foreign currency denominated. TRO and TSU have some US$ denominated debt but it is hedged against exchange rate fluctuations and this debt is offset by cash holding in Brazilian real. In fact both companies are strongly cash positive - the cash holdings cover debt more than 3x. So while an real crash and the hyperinflation that would come with it would certainly hurt these companies they would not go under and certainly would recover. Besides that I see the economy and Lula's government as reasonable stable, so i think that extreme exchange rate fluctuations are not very likely. From a business and balance sheet point of view, both companies never have been stronger.