After a stellar year, is there still time to enjoy Brazil’s bullish stock market?

</p> <p>A stronger economy is expected to boost companies’ profits, thus reflecting on their share prices. At the same time, <a href="https://brazilian.report/business/2019/11/26/brazil-plan-to-slash-bank-spreads/">low interest rates</a> make riskier investments—such as trading stocks—more attractive.&nbsp;</p> <p>Fund managers <a href="https://conteudos.xpi.com.br/fundos-de-investimento/relatorios/o-que-os-gestores-de-fundos-de-acoes-esperam-da-bolsa-em-2020/">consulted by XP Research</a> are overwhelmingly positive about stocks in Brazil: 56 percent are gambling on yearly gains of between 10 and 20 percent for Ibovespa in 2020, while another 19 percent see gains higher than 20 percent. Only 3 percent believe the index will suffer a yearly loss of up to 10 percent.&nbsp;</p> <p>External factors are the leading cause of concern, suggesting a strong level of trust in Brazil&#8217;s own economy. For 78 percent, retail will outperform Ibovespa, while 41 percent are backing a good performance for real estate, and 42 percent are putting their trust in oil and petrochemicals.&nbsp;</p> <div class="flourish-embed" data-src="visualisation/1209974"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <h2>Analysts’ stock market gambles</h2> <p>Though <a href="https://valor.globo.com/financas/noticia/2019/12/30/ibovespa-encerra-2019-com-rentabilidade-de-3158percent.ghtml">only 6 out of the 68 stocks</a> that comprised Ibovespa in December finished 2019 in the red, analysts see room for further gains. While they display varying approached and opinions, the strong belief in a new cycle of economic growth for Brazil is evident in most reports.&nbsp;</p> <p>Brokerage Guide Investimentos stuck to its strategy of recommending stocks related to the local economy for its January 2020 portfolio. “Names related to companies in the financial industry, <a href="https://brazilian.report/?s=privatizations">privatizations</a>, as well as assets connected to consumption remain our main investment plan,” wrote analysts in their report.&nbsp;</p> <p>BTG Pactual’s Carlos Sequeira and Osni Carfi sustain that “consumption and infrastructure/real estate-related stocks should continue to perform well in 2020, as credit expands, employment rises and interest rates remain low.” While gambling on fashion retailer Lojas Renner, railroad operator Rumo and steelmaker Gerdau, they also diversify by adding meatpacker JBS to their portfolio.&nbsp;&nbsp;</p> <p>XP Research follows a <a href="https://conteudos.xpi.com.br/acoes/analises-fundamentalistas/carteiras/top-10-acoes-xp-janeiro-de-2020/">similar strategy</a>, dividing their approach into four main areas: companies with long exposure to lower interest rates—car rental chain Localiza and shopping mall manager Iguatemi—accelerated growth—Bradesco bank, retailer Via Varejo, highway administrator Ecorodovias, homebuilder EzTec—and attractive stocks related to the globalized sector, such as Petrobras, Vale, and JBS. For the latter, their recommendations are selective, considering that uncertainties in the global scenario remain high.</p> <h2>Diamonds in the rough</h2> <p>Ibovespa is Brazil&#8217;s main stock index, gathering blue chips such as oil company Petrobras, brewery giant Ambev, Itaú bank, and mining firm Vale. However, it is not the only horse in the race as far as Brazil’s financial markets are concerned. São Paulo’s stock exchange also has several sectoral indexes that give investors exposure to their favorite segments of the economy, with some faring as well as or better than Ibovespa.&nbsp;&nbsp;</p> <p>SMLL, which gathers Brazil&#8217;s small caps—stocks with a smaller market value and trading volume—rose an astonishing 58.2 percent in 2019. IMOB, which comprises Brazilian real estate and construction companies, jumped 66 percent, while ICON, the consumer-related companies index, rose 51 percent.</p> <p>In a recent report, Levante Investimentos analyst Eduardo Guimarães highlighted that small caps will remain a good opportunity for 2020. “I like small caps for three reasons: the companies are off of most investors’ radar, they have the potential for higher profit growth and you can be exposed to more sectors since the SMLL is far less concentrated than Ibovespa,” he wrote.&nbsp;</p> <p>Mr. Guimarães also points out a new rising star in Brazil’s financial markets: real estate funds. The number of individual investors in these funds rose to an all-time record of 573,633 people in November 2019, according to the São Paulo stock exchange. The steep rise also reflected on IFIX, B3’s index for real state funds, which jumped roughly 36 percent in the year. According to the analyst, this move can be explained due to lower interest rates and higher demand for variable income assets.