Ibovespa After November: Grind or 300k Rally
My longer term view on the Ibovespa still offers positive asymmetry for anyone willing to stay long, provided the international macro environment does not deliver a black swan. I will not discuss commodities, which I see as a natural tailwind for the Brazilian index, nor the valuation gap. The Ibovespa trades at 8 times earnings against a 13-15 times average for other liquid global markets and more than 20 times in the United States.
The real focus is the election. It is 45 days away and we will have the official result in November. Lula’s candidacy is weakening quickly while every opponent is running on a reformist agenda that is gaining ground with the press and public opinion.
That leaves two paths. Lula re-elected would be more of the same Brazil has lived with for nearly 3 decades. The index would likely correct 15% toward the support of its long term uptrend and then grind higher from there. A reformist opposition win could take the index toward the 300k region, the upper band of the same long term channel, within 18 months.
That would be a powerful rally.
The two green and red arrows and their respective targets on the chart below clearly illustrate my thought.
My longer term view on the Ibovespa still offers positive asymmetry for anyone willing to stay long, provided the international macro environment does not deliver a black swan. I will not discuss commodities, which I see as a natural tailwind for the Brazilian index, nor the valuation gap. The Ibovespa trades at 8 times earnings against a 13-15 times average for other liquid global markets and more than 20 times in the United States.
The real focus is the election. It is 45 days away and we will have the official result in November. Lula’s candidacy is weakening quickly while every opponent is running on a reformist agenda that is gaining ground with the press and public opinion.
That leaves two paths. Lula re-elected would be more of the same Brazil has lived with for nearly 3 decades. The index would likely correct 15% toward the support of its long term uptrend and then grind higher from there. A reformist opposition win could take the index toward the 300k region, the upper band of the same long term channel, within 18 months.
That would be a powerful rally.
The two green and red arrows and their respective targets on the chart below clearly illustrate my thought.
