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BRAZIL : OPPORTUNITIES IN TROUBLED MARKETS

BRAZIL : OPPORTUNITIES IN TROUBLED MARKETS. LUIZ FERNANDO FIGUEIREDO. FX: Are we in the 2002 path?. FX depreciation has been even more agressive this time than it was in 2002. But there are crucial differences:. BRL/USD. 4. 2.85. 3.8. 2.65. 3.6. 3.4. 2.45. 3.2. 2.25. 3. 2.05. 2.8.

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BRAZIL : OPPORTUNITIES IN TROUBLED MARKETS

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  1. BRAZIL: OPPORTUNITIES IN TROUBLED MARKETS LUIZ FERNANDO FIGUEIREDO

  2. FX: Are we in the 2002 path? FX depreciation has been even more agressive this time than it was in 2002. But there are crucial differences: BRL/USD 4 2.85 3.8 2.65 3.6 3.4 2.45 3.2 2.25 3 2.05 2.8 2.6 1.85 2.4 1.65 2.2 2 1.45 -3 -2 -1 0 1 2 3 4 5 6 7 8 months 2002 (LHS) 2008 (RHS) Net Public Debt as % of GDP 60.0 55.0 50.0 45.0 2002 forecast 2008 40.0 35.0 -3 -2 -1 0 1 2 3 4 5 6 7 8 Months • Today, Public Debt as % of GDP goes down with FX depreciation • (2002 was the opposite); 2

  3. FX: Are we in the 2002 path? b) Less deflacionary this time, since Commodity Prices are falling; • c) External Accounts are considerably more balanced 3

  4. Real Interest Rates Quite high by any standard

  5. The Brazilian stock market underperformed, despite solid macroeconomic fundamentals Even though companies did take advantage of the bull market’s abundant liquidity, they are being penalized on a relative basis. Foreign outflow is contributing to exaggerated movements. Brazil once again is being traded at a discount when compared to Latam, EM and World P/Es. Source: Bloomberg, Economática, Bovespa

  6. Sectors, such as financial, are being excessively penalized due to the global credit crisis • Brazilian banks are less exposed to the crisis because : • (1) They are not exposed to the subprime market • There is not the issue of being • “too big to be saved” • (3) Housing credit still low as % of GDP. Source: Financial Times, Company Data, Banco Central do Brasil, Mauá Consultoria

  7. Seeking comfort in valuation: even stress testing our base case scenario, upside is attractive Average historical multiple: 10.9 Stressing the scenario for one of the banks under our coverage shows that worst case equals banks trading at average historical P/E, considering maintenance of spreads. Source: Bloomberg, Company Data, Mauá Consultoria

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