BlackRock and Goldman Sachs Bullish on Brazil Bovespa

by: Rohan C. Pease

During the earlier part of this week, Goldman Sachs (NYSE:GS) recommended buying the Brazilian real again after its recent slide during January. During the late part of Q3 they recommended buying the real at around 1.88/USD and indicated it would appreciate to around 1.71/USD; it did and then some and eventually bottomed out at around 1.69/USD. After weakening to around 1.72-1.74/USD, Goldman announced in mid December that it was overvalued. Then came the attack by Brazil's central bank and the imposed 2% tax. Needles to say Goldman called it right. I participated in this rally by holding VALE (NYSE:VALE) and Petrobras (NYSE:PBR) ADR's and therefore was exposed to the appreciating real. These were sold about a week after the announcement of 2% tax.

Yesterday, Blackrock Investments (NYSE:BLK) announced that their target for the Bovespa by quarter's end would be @ 77K, which is approx 14-15% above Tuesday's close. Brazil's domestic economy is still very resilient and strong, and a good place to buy risky investments in the emerging world with China cooling off, and Russia's poor treatment of foreign capital, hopefully not a route Brazil will take further with their taxes.

Since both of these very prominent prop. trading desks have declared their bullishness on Brazil, I believe now is the time to leg into such ADR's as VALE, PBR, OGX Petroleo e Gas (OTCPK:OGXPY) and CPFL Energia (NYSE:CPL).

Currently VALE is nearing its 200 day EMA, its 61.8% retracement from Sept 09, and the real/USD cross @ 1.88 when VALE was @ 19 in Sept 09, all indicators hit at around $24-25/ share. If that isn't enough support consider that Eike Batista, Brazil's Oracle (founder of OGX, MMX, etc.), started amassing a huge position in VALE @ around $23-26/share, this should provide nice support in the share price.

Note PBR and CPL have both underperformed the Bovespa in the last 12 months.

Disclosure: Long VALE ADR Shares, No positions in PBR, CPL, OGXPY.PK, MMXM3.SA, GS, BLK