Wall Street’s Biggest Brazil Bull Sees 20% Surge for Stocks

(Bloomberg) — Latin America’s best-performing equity index this year still has room to run, according to Bank of America (NYSE:).

The bank reiterated an overweight recommendation on the Brazilian stock market — its sole overweight in the region — and set a target of 130,000 points for the benchmark index by the end of 2020, which implies upside of about 20% from current levels.

“Economic activity data have been supporting the idea of accelerating growth,” said David Beker, BofA’s Latin America equity strategist, in a phone interview. “As growth picks up, Brazilian companies should be able to deliver stronger earnings and the local equity market should continue to rally.” He sees local earnings expanding about 17% in 2020.

Beker also expects Brazil’s gross domestic product growth to accelerate to 2.4% in 2020 and 3.5% in 2021, amid a scenario of low rates, benign inflation and continuing reforms from President Jair Bolsonaro’s administration. “The government has been making efforts in order to improve Brazil’s business environment and we’ll have further adjustments,” Beker said.

Wall Street banks have broadly bullish bets for Brazilian stocks, with JPMorgan (NYSE:) and Morgan Stanley (NYSE:) seeing an acceleration in economic growth and strong rotation to equities from fixed income boosting the local market. Since Bolsonaro came to office in January, the Ibovespa has rallied 24% — the 10th-best among 94 global benchmarks.

At the end of last year, when Ibovespa was hovering around 89,000 points, Beker placed the most optimistic 2019 year-end estimate for the index — at 120,000. The benchmark is now trading around 109,000.

Among Brazilian stocks, BofA prefers state-controlled firms, consumer names and stocks that are more linked to a low-rate environment. The firm also likes banks as they should benefit from improving credit volume and can overcome fintech disruption by cutting costs.

BofA maintained its market-weight recommendation for Mexico and underweight for Chile. The bank has no allocation to Colombia and no exposure to Argentina.

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