Brazil's Bovespa stock index is expected to gain 10 percent by end-2016 and reach 50,000 points, according to the median forecast of 11 analysts in the poll conducted December 7-10, offering smaller gains than short-term interest rates of 14.25 percent. And that median forecast is a downgrade from a September poll when it was predicted to reach 52,000 by the end of 2016. The benchmark index has dropped over 9 percent this year.
The plunge in dollar terms has been even more acute at over 30 percent and could continue into next year as strategists in a separate Reuters poll expect the Brazilian currency to fall near record lows in coming months. Investors have opted for defensive stocks such as payment processor Cielo SA, which offers a natural hedge against double-digit inflation, and pulp exporter Fibria Celulose SA, which benefits from a stronger dollar.
Earnings have fallen across the board as Brazil's economy sinks into one of its worst recessions on record, blamed on the country's political crisis. Further losses may be on their way as ratings agency Moody's threatens to downgrade the country into junk in coming months. The main hope for a turnaround, strategists in the poll said, is a solution to the political stalemate that is paralysing much-needed economic reforms. The quickest fix seems to be Rousseff's impeachment, although that process, initiated earlier this month, is likely to fuel political wrangling for months.
"The Bovespa should test new lows in the first half of 2016, given the very negative macro outlook. However, we caution investors not to be so bearish, given the light positioning," said Felipe Hirai, a strategist with BofAML. Mexico's IPC stock index should rise at a more steady pace through 2016, forecasters said. The median forecast from 12 analysts suggested the index would climb to 47,900 by end-2016, a 14 percent gain from Friday's close of 42,000.63. Shares of Grupo Financiero Banorte, Mexico's fourth-largest bank by assets, and of bottling and retail company Coca-Cola Femsa are some that could benefit the most from an expected pick-up in economic growth and domestic consumption in 2016, J.P. Morgan strategist Nur Cristiani wrote in a report.