Seems the Brazilian Carnival Came Early
12 June 2023
Another solid week for the portfolio, up +0.77%. Though behind the FTSE 100, also considerably ahead of the other users on my investing platform.
Although there was some continued performance from the uranium stocks with Cameco shooting up another +11%, the big winners this week were my Brazilian names.
Petrobras soared on the release of a report from Morgan Stanley upgrading their rating on the name, based on previous concerns around the effect of the Lula administrations plans to fix petroleum prices and potential dividend restrictions beginning to dissipate. Instead the company has continued with its generous dividend policy. I continue to remain bullish on the name and continue to see it undervalued. You can read more on my thoughts on Petrobras [in my note from back in April. My rating price range for Petrobras does not change, I still see it as a BUY until USD15 a share for the US listed ADRs.
Next is Brazilian miner Vale, the worlds largest miner of iron ore. I added the position when iron ore and copper prices were at their most depressed. On the back of the news that the Chinese government will look to stimulate the domestic real estate sector, global iron ore prices rose thus supporting Vale’s business. I continue to view the shares as cheap, certainly when considering a long to medium term view. Copper prices will rebound and iron ore prices will rise and stabilise in the medium term and I expect this to help support the Vale price in future.
I broadly remain bullish on Brazil overall. Inflation has fallen fast, which seems to signal the slowing of the economy. This has also been seen in some corporate earnings over the past few weeks. However, I think added to pressure from Lula, that the central bank will cut rates earlier and more than market expectations, which will provide a boost to equities. Current overnight rates in Brazil are 13.75%, and inflation is now at 3.94% which is within the Brazilian Central Bank's Inflation Target of 1.5% either side of 3%.