HSBC Sees Brazil's Bovespa Rising 32%, Extending Gain

Brazil's benchmark Bovespa stock index may extend its rally to a sixth year, gaining 32 percent over the next 12 months as profits rise, HSBC Holdings Plc's asset management unit forecast.

An expected slowdown in the U.S. economy won't keep earnings at Brazilian companies from advancing 11 percent next year after an 18.5 percent increase this year, according to Pedro Bastos, the chief executive officer of HSBC Investments in Brazil, and Mario Sergio Felisberto, the chief investment strategist.

``The effect that the slowdown in the U.S. economy is generating in profits globally is marginal,'' said Felisberto, who helps manage about 53 billion reais ($30 billion), at a conference in Sao Paulo. ``Unless we have a strong deterioration in the market, and there's no sign of that right now, we will still see growing profits.''

The Bovespa has risen 37 percent since December and is poised for a fifth year of gains after record low interest rates and high commodity prices boosted shares of its biggest companies.

An expanding global economy should lift Petroleo Brasileiro SA, Brazil's state-controlled oil company, Bastos and Felisberto said. HSBC also favors miners such as Cia. Vale do Rio Doce, the world's biggest iron-ore producer. Vale is up 81 percent this year, making it the fourth best performer among the Bovespa's 63 members.

Mobile Phones, Utilities

Shares of mobile phone companies are less attractive because of growing competition in the industry, they said. Utility shares may be hurt by regulatory uncertainty.

The Bovespa has gained more than six-fold, in dollar terms, since President Luiz Inacio Lula da Silva took his post in January 2003. It's the seventh best performance among 90 primary stock indexes tracked by Bloomberg in the period.

Further gains hard to come by, said Brazilian central bank president Henrique Meirelles.

``Prolonged economic expansion in any country brings the risk of exaggeration, and we run the risk that the pricing of certain assets may be exaggerated,'' Meirelles told reporters today in Sao Paulo. ``The stock market is one of those assets and we need to always look at this with attention.''

The Bovespa index rose 71.47, or 0.1 percent, to 60,653.01 today. It's trading at about 14 times its estimated earnings for this year, compared with 18 times for the Hong Kong's Hang Seng Index. China's Shanghai B-Share Index trades at 68 times its estimated earnings.
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