{"text":[[{"start":9.35,"text":"Brazil has ended a nearly five-year drought in initial public offerings, as foreign investors drive an equities rally in Latin America’s largest economy fuelled by high oil prices due to the Iran war."}],[{"start":23.1,"text":"Owners of gas and energy company Compass sold R$3.2bn ($655mn) of shares on the São Paulo stock exchange on Thursday, in the market’s first new listing since September 2021. "}],[{"start":37.5,"text":"The long-awaited flotation followed a 15 per cent rise in Brazil’s Bovespa index this year in local currency terms, ranking it among the best performances by emerging markets globally. "}],[{"start":50.65,"text":"“We saw a lot of demand for Latin American assets this year [and] Brazil is the most liquid story in the region, so it ends up getting more flows,” said David Beker, chief Brazil economist and Latin America equity strategist at Bank of America. This year’s Bovespa rally, he said, was largely driven by foreign capital inflows."}],[{"start":70.9,"text":"“You have the weak dollar and the demand for commodities. This is something the region provides and Brazil specifically a lot. Besides that, investors’ allocations in the region and Brazil have been quite low,” he added. "}],[{"start":86.25,"text":"The Bovespa index is up nearly 30 per cent in dollar terms this year, placing it in the top-10 best-performing bourses worldwide, far ahead of the S&P 500, up 8 per cent, and MSCI benchmarks for advanced and emerging market stocks, up 7 per cent and 23 per cent respectively."}],[{"start":105.25,"text":"As a top exporter of oil, minerals and foodstuffs located far from geopolitical strife, Brazil has emerged as an indirect beneficiary of turmoil in the Gulf, which has sent the cost of crude soaring."}],[{"start":null,"text":"
"}],[{"start":118.65,"text":"Much of the equities upswing is because of heavyweight stocks that account for a large share of the index, such as state-controlled oil producer Petrobras, up 51 per cent this year, and miner Vale, up 12 per cent, as well as some financial institutions."}],[{"start":134.65,"text":"The Bovespa benchmark is trading at about 185,00 points, down 1.5 per cent since the eve of Thursday’s IPO and below a record high of 199,000 a month ago. Beker said the recent dip was the result of some investors cashing out to take profits, but predicted the rally had further to run. "}],[{"start":158.3,"text":"With Brazil’s interest rates in double digits, despite the recent start of easing by the central bank, domestic savers have withdrawn en masse from equities over the past few years in preference for fixed-income products."}],[{"start":170.95000000000002,"text":"But foreigners have moved to fill the gap. Net capital inflows into the B3 from abroad were R$57bn this year to the end of April, already more than double the total amount last year, according to analytics firm Quantum Finance. Inflows were spurred by relatively cheap stock prices, according to money managers. "}],[{"start":193.05,"text":"“This low baseline valuation acted as a springboard for outperformance when conflict broke out in the Middle East,” said Alex Duffy, portfolio manager at Marathon Asset Management, which has a larger-than-benchmark position in Latin America."}],[{"start":207.15,"text":"“Many of Brazil’s companies are less dependent than international peers on Gulf-originated hydrocarbons,” he added. “Investors may well place a new premium on those companies and markets which have proven able to weather the current storm.”"}],[{"start":220.8,"text":"The Brazilian real is the world’s second-best-performing currency so far this year, up more than 11 per cent against the dollar in spot terms, behind only the Zambian kwacha."}],[{"start":null,"text":""}],[{"start":231.05,"text":"Investors are also enthused by the possibility of a more business-friendly government in Brasília ahead of elections in October. Leftist president Luiz Inácio Lula da Silva’s main challenger, the rightwinger Flavio Bolsonaro, is tied or even slightly ahead in most opinion polls."}],[{"start":247.45000000000002,"text":"But there is uncertainty over how a cessation of hostilities in the Middle East will play out for Brazilian stocks. Its equities were trading at roughly 11 times earnings, in line with historical levels but still at a discount compared with many of its peers, said Beker. Unlike many Asian economies, for example, Brazilian companies had little exposure to the supply chains of US Big Tech giants, while commodity exporters tended to trade at low multiples."}],[{"start":273.65000000000003,"text":"“Investors have room to add allocations into Brazil. They are just waiting to have a clearer picture on the war,” he added."}],[{"start":280.75000000000006,"text":"Bankers are hoping that the debut of Compass, in which a minority stake was sold by existing shareholders, will open the door to further transactions. "}],[{"start":290.30000000000007,"text":"“If you don’t have many IPOs it’s like a body’s circulatory system that isn’t working. It’s a positive sign that the patient is improving, but it’s still very early,” said Marcelo Mesquita, partner at Leblon Equities in Rio de Janeiro. “It’s about interest rates falling steadily and not just being a flash in the pan.” "}],[{"start":308.25000000000006,"text":"Compass’s parent group, the conglomerate Cosan, is expected to use some proceeds to pay down borrowings at another portfolio company, biofuels producer Raízen, which is restructuring its debts."}],[{"start":320.95000000000005,"text":"Additional reporting by Beatriz Langella in São Paulo "}],[{"start":331.70000000000005,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1778323385_7513.mp3"}