Archive for the ‘finance’ Category

Brazilian Banking, a tale of IPO’s & ADR issues

banco do brasilState controlled banking behemoth Banco de Brasil has been involved in a three way battle with it’s private peers Itau-Unibanco (NYSE:ITUB) & Banco de Bradesco (NYSE:BBD) for some time for dominance in the growing domestic banking sector. Having surpassed ITUB in the second quarter, mainly due to lower interest rates attracting borrowers, Banco de Brasil has now announced that is looking to change it’s stance regards international stockholders.

Yesterday, a spokeswoman for the company revealed that the bank is now looking to double the potential foreign ownership in Bovespa traded shares from the current 11% by raising it’s free float of shares to 25%.

On the same call, she also advised that the bank has appointed an advisory bank regards launching an ADR offering on the NYSE, similar to it’s two biggest rivals, the programme could be launched by the end of this year.

“We are talking about two movements that aim to improve the attractiveness of the shares,” Marco Geovanne Tobias da Silva, said in a telephone interview with Bloomberg. “We are increasing the number of potential investors to our shares.”

Banco de Brasil has performed well this year, having outperformed the Bovespa average by some margin. As we have discussed in previous articles, the banking sector in Brazil has been going through a wave of consolidation & the state bank has just added to its growing portfolio via the acquisition of a 49.99% stake in Banco Votorantim for 4.2 billion reals ($2.3Bn) earlier this month.

Meanwhile, Spain’s Santander (NYSE:STD) is now looking at a local IPO that should see an initial raising of $200 million (equivalent to 15% of current valuation) that will be used to expand its reach across the country. At the same time, Santander also said that it will launch an ADR programme for the local listing.

With only a single IPO so far this year with Visa affiliate VisaNet, Brazil now has 12 companies that have registered since the end of July for potential listings. The VisaNet launch was hugely oversubscribed & raised a Brazilian record of $4.5Bn in its sale, much to the benefit of Bradesco.

Much of this is fuelled by local retail interest, as the Brazilian middle classes are growing, however, there are also signs that foreign investors are looking at Brazil as the next BRIC economy to really get going, with Credit Suisse (NYSE:CS) coming out with a bullish statement yesterday.

“Brazil is in style for foreigners,” said Ilan Ryfer at Credit Suisse Hedging Griffo, Brazil’s biggest hedge fund. “Everyone thinks it’s a bull market again and the party’s back. Investors have short memories.”

Much of the excitement around Brazilian stocks is fuelled by its BRIC partner China, as the Chinese economy starts to lift again, commodities are very much back in vogue. South Africa’s Investec Asset Management is looking at Brazil & neighbours Chile & Peru to lead the way in South America, as Chinese demand for raw materials is set to grow.

So Viva Brasilia !! & being a bull on emerging markets & Brazil in particular, I am looking forward to the Banco de Brasil & Santander IPO’s with great interest.

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Brazilian banking, a two horse race

itau-unibancoBrazilian banks have been on a tear this year, with both Itau-Unibanco & Banco de Bradesca returning more than 100% year to date. As the “B” in BRIC, Brazil is thought  to be coming out of it’s recession, with The Economist stating that the country could see a return to 4%-5% in 2010, as Brazil is less dependant on the US as an export market & is forging ties in Asia, notably with China on energy accords.

Over the last month however, ITUB & Bradesco, the number 1 & 2 private banks, have been dragging, with ITUB being hit yesterday by the general market malaise, shedding 2.3% over the session. The overall negative sentiment on Brazil in August was not helped by President Lula‘s much discussed plan for the government to take greater control of oil reserves via the worlds fourth largest oil company Petrobras, which has seen some investors pulling back on Brazilian ADRs.

There are reasons to be bullish however, as Finance Minister Guido Mantega commented last week that Moody’s Investors Service is signalling that it may upgrade Brazil to investment grade. The banking system has been going through a wave of consolidation, with state owned Banco de Brasil jostling with ITUB & Bradesco for the top spot, all helped along by an 8.5% interest rate.

Bradesco has done well with it’s half year results, beating analyst estimates, mainly propped up by it’s sale of a partial stake in VisaNet, the Brazilian Visa affiliate, which provided the bank with a much needed $1.5Bn cash injection. Bradesco still retains a 26.5% stake in VisaNet after the IPO.

“The worst might be over in terms of defaults,” Chief Executive Luiz Carlos Trabuco Cappi said in a conference call with journalists. “With the formal economy and wages growing, the trend for default rates after reaching the peak is to edge lower.”

Similarly, Itau-Unibanco had a healthier than expected half year, with profits only dropping by 14%, mainy due to bad debt provisions,, which had doubled on 2008. Lending is expected to expand 10% to 15% in 2009 and should grow as much as 25% next year as Brazil emerges from recession, Chief Financial Officer Silvio de Carvalho said in a conference call with journalists.

“We have clear signs that credit has become an important factor in the economic recovery now underway,” Carvalho said. “Everything leads us to believe that the crisis is behind us.”

Looking at both of these stocks, they have both been recording higher lows & higher highs for the last 6 months, which to me makes them aln attractive prospect. Add in the positive sentiment from Moody’s, Fitch & Standard & Poor regards the Brazilian economy & there is certainly a feeling of comfort there.

ITUB_Trend

Looking at ITUB in particular, their ambitions to become a full service provider in all aspects of financial services took a step further last week when the bank merged it’s fledgling insurance business with specialist firm Porto Seguro, allowing it to now offer health & life insurance products to it’s 50 million customer base, this only 3 days after Bradesco & Porto had ended similar talks.

“The two companies have a lot to explore together,” said Kelly Trentin, a banking analyst at the SLW brokerage in Sao Paulo. “Financial stability in Brazil and rising family income make it more likely that people will look for more insurance products.”

So for me, Itau-Unibanco is the horse to back in this race right now.

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MyStockVoice.com is now alive & kicking

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It’s taken a while & it’s been an interesting experience, but am pleased to say that we released MyStockVoice.com into public beta. For me personally, there have been a few challenges, “assisted” along the way by re-locating with my family from Switzerland to Slovakia.

The team at Connection Services who have designed & support the MSV platform have been excellent, especially when responding to an ever changing set of requirements. MyStockVoice started as this WordPress blog, where I could muse on my views on Emerging Markets & BRIC economies. A conversation with a friend who works in the City (London) encouraged me to look at doing something a little more. The original format, was a forum, then a newswire service & now it’s a fully fledged blog publication platform. So you can imagine how happy my colleagues at CSL were, when I tripped back every few months & said “right, this is what we are doing now”

Our aim at MSV is to provide an ever widening audience with value insights into what is rapidly becoming a major topic for hedge funds, investment managers & retail investors alike : BRIC & Emerging Markets. International stocks traded on US exchanges are becoming ever more popular, especially via Depositary Receipts (ADR,ADS,ADN) , for the more cautious or long minded, a number of ETF (Exchange Traded Funds) have sprung up to service the appetite to take part in these growing economies.

Covering all the major regions, MSV provides focussed channels into a variety of sectors & also specific categories for Macro Econmics, ADR & ETF investing. We are pleased to be working with some well established names from the investment community, along with faculties such as Knowledge at Wharton, the Economics Faculty at Beijing University, Skolkovo Business School in Moscow & Cranfiedl University in the UK.

Our strapline is “your community … your voice”  & to reflect this, we will be bringing our readers plenty of new unique content. Much of my time in the last two to three months has been spent contacting individual bloggers & also online media services that are based in the regions covered. In this way, we can present a “blend of thought”, that will allow our subscribers to formulate informed opinions on their own particular areas of interest.

So, enough jawing from me, but to close, Alex, Chris & myself would like to thank the team at CS & all the people that have had input into the project. We sincerely hope that you enjoy the MSV experience & are always open to new ideas, partnership opportunities & most of all feedback.

Many thanks

Paul

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More pressure on copper as commodities start to fade

FCXFollowing on from my post last week “What goes up  must come down” , where I looked at the two largest producers of copper, Chile‘s Codelco & also the American firm Freeport McMoRan, I have spent some time over the weekend researching the copper market & looking to see if I could find anymore signals that would show market direction.

Re-capping on the trade, FCX so some very significant selling volumes from the open on Friday &  the trade triggered as FCX fell through the 65 mark, where I commited to 50% of my planned exposure, the remaning 50% was then entered at 64.25 & I rode this down to 63.06.  I am looking to repeat this trade as a swing this week & here are some of the reasons why.

As previously stated on Freeport McMoRan, the company has scaled back copper production & has increased gold production to an all time high. Freeport is making some serious cutbacks & cost management is a major theme, as with many other major stocks, so I am still bearish on FCX as a whole from a fundamental standpoint.

Whats more interesting, is looking at some other factors that help bear out (nice pun) my thesis that we are looking at short term oversupply of copper. First let’s have a look at the copper Exchange Traded Fund : JJC, it has seen a strong uptrend  since early this year, returning a tad over 100% year to date, however looking at this technical chart, it would seem to be overbought & is signalling this.

JJC

Turning to a shorter term chart & looking at volumes on JJC, we can see that it hit & refused it’s upper Bollinger on Thursday 13th & saw some very aggressive selling in high volumes on Friday. If we then look closer at the history of the ticker, it has a habit of withdrawing back to it’s 20 Day Moving Average, which would give a reasonable bottom at 36.90 on any significant breakdown. So, I am looking to take another short position in JJC (if I can, it’s pretty illiquid) & see if I can’t double up on my FCX trade.

JJC 3 month

Another indicator that all may not be well is the performance of the Base Metals ETF : DBB, which holds an equal 33.33% in copper, aluminium & zinc. DBB has also had quite a years so far, with a return rate of 53%, on Friday this started to look fragile & there was fairly spikey activity in the ticker all through the day, finally closing 3.8% down, so not a bright day for metals at all. Again looking at a 3 month chart, we can see that DBB has been hitting it’s head against the upper Bollinger since mid July & at the latter end of last week also refused. Needless to say that Friday saw some volumes selling off, although not as heavily as FCX & JJC. The reasoning behind this is that DBB is held by select financial institutions & they are unable to un-reel their positions very quickly.

DBB

So to summarise, FCX still looks weak, JJC in my opinion is looking to implode & the major ETF in this sector is on the retreat. Again, I’ll be looking at shorting Freeport down, as per the tactics from my last post & if I can get in on JJC, I’ll be tapping into a short there too, looking for an exit at around 38.50. If the sell off continues, next stop for me is the 34.20 mark, so I’ll look to drop the short at 34.50. Add to all this the negative sentiment on China  & commodities right now, I think these swings could be real earners for this week.

Author has no current holdings in any stock mentioned

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