News that Brazil's Petrobras (NYSE:PBR) has found a "large accumulation" of light oil in another offshore well could be the catalyst traders need to drive the stock -- and the Bovespa -- higher. PBR says that that the Barra exploration well contains more oil than the now-mature Guaricema and Dourado fields and, if anything, resembles the blockbuster 80 billion-barrel Campos field in terms of quality.
Either way, according to J.P. Morgan, the Bovespa looks cheap, and PBR is a big part of that discount. Counting PBR, the Brazilian market is trading at 10.8 times 12-month forward earnings, only a little above its historical average of around 10.4 times forward earnings -- and still at a broad discount to other Latin, emerging and global benchmarks. Take PBR out of the mix, and Brazil is still only trading at 13 times forward earnings.
When you consider that Brazilian companies are growing their earnings at around 15.3% this year, there still seems to be a bit of upside in domestic Brazilian opportunities in particular. If so, funds like BRAZ could be due for a new round of outperformance as the large-caps (ex PBR of course) drift for awhile:
Disclosure: No position