Has much of the good news in Brazilian stocks has already been priced in?

Until recently, the market had incorporated the good news over Brazil, but considering the sell-off in Brazilian stocks since the beginning of this year, the positive scenario is not incorporated at all. The possibility of a recession in the U.S. should affect Brazil as well as other markets all around the world.

Nevertheless, I do believe Brazil is in a better situation than most emerging countries: its current account is still positive, trade balance should be positive (around US$30 billion) for 2008 and total reserves of the country is around US$180 billion - much more than the public external debt. All considered, I believe Brazil will outperform emerging markets during this turbulence, and any major weakness should be considered a buying opportunity.

Where do you foresee price appreciation among industries - or specific stocks - in the Brazilian market?

Sure, after the sell-off there are many stocks highly undervalued. Of course, commodity stocks are more risky due to the possibility of a recession in the U.S. However, the telecommunication industry remains quite interesting, particularly Telemar (TNE), Brasil Telecom (BRP) and Vivo (VIV). Electric utilities are also undervalued: Cemig (CIG) and Copel are good examples of interesting undervalued stocks.

Has the Brazilian market become less risky?

The Brazilian market has been trading recently with P/E close to 13x (past 12 months) or 11.5x (forward). China is trading with valuations of 40x and India is trading at 22x (both considering the past 12 months. It is true that Brazil do not have the same potential for growth that both China and India have, nevertheless 40x sounds overvalued whatever the circumstances, and 12x is not really much for a country that is expected to grow between 4% and 5% in the following years.

However, the Brazilian market is highly exposed to commodities and basic products.