Morgan Stanley Revises Brazilian GDP Up

Some months ago during the difficult moments of the financial crisis, Morgan Stanley (MS) issued a report forecasting a GDP contraction of 4.5% for Brazil in 2009. We always had a more benign view on emerging markets in general and Brazil in particular.

We had been stressing that: (i) the Brazilian banking system remains sound, (ii) domestic interest rates have huge room for cuts and (iii) Brazil is still a “closed” country which does not rely overly much on exports and imports. All this together points to a more positive economic environment in Brazil in 2009, if compared to more developed economies like those in Europe, the U.S. and Japan.

The more positive view on Brazil (and other emerging markets, particularly China and India) is now considered basic common sense. Yesterday Morgan Stanley announced that it revised its expectation for the Brazilian GDP from -4.5% to just -1% for 2009. For 2010, Morgan Stanley revised its estimate from +0.5% to +2.5%. We believe the new numbers are a better portrait of the current economic situation in Brazil.

We continue to favor companies with strong exposure to the Brazilian domestic market. We like Vivo (VIV), Cemig (CIG), Sabesp (SBS) and Coca-Cola Andina (AKO-A).

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