16 January 2009
The Latam Equities Flagshig
Notes from the road -
buyside feedback
Fresh trade ideas:
We recommend Suzano based on: 1)
attractive valuations (6.1x 2009E
earnings), 2) stable domestic paper
prices. We recommend Banorte based
on: 1) interesting valuation (1.0x book
value) and 2) the start of monetary easing
cycle in Mexico.
We expect a short-term 10-15% correction in Latin equities.
Guilherme Paiva, CFA
Strategist
(1) 212 250 2873
guilherme.paiva@db.com
Deutsche Bank Securities Inc.
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may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Global Markets Research Company
2009 should be a year of positive returns for Latin stocks…
We forecasted 35% upside for Latin American equities when we published our
year-ahead report. Our investment thesis for regional – but also applicable to
global – stocks in 2009 was, and still is, of an equity market re-rating (i.e. PE
multiple expansion) driven by an eventual stabilization of the global economy.
…however we are bearish in the very short-term…
Our investment thesis for the whole year has played out over only the past 45
days, against a macro background of deteriorating fundamentals. Consequently,
we are bearish in the very short-term and we expect a correction over the next
few weeks. We see three main potential reasons for the next leg down:
1) Weaker-than-expected U.S. economic data;
2) Valuations which are no longer supportive; and
3) Current cash levels from dedicated investors are relatively low.
…and we would wait for an additional 10-15% pullback before adding
We believe there is a small but not insignificant chance (25%) that the 2008 lows
will be tested again (markets usually overshoot in both directions). Therefore, we
would wait until markets fall at least another 10-15% (Brazilian Bovespa at 33,000
points and Mexican Bolsa at 19,000 points) before we would start to add
aggressively. We would favor commodities over domestic names when we start
buying again.
We visited almost 100 dedicated and crossover clients over the past 45 days
We asked portfolio managers whom we visited three questions:
􀂄 What is your fund’s current cash position? Our conclusion is that cash
positions were relatively high in December 2008 when we visited European and
South American clients. However, they were at lows levels in January 2009 when
we met with U.S. clients;
􀂄 Are you overweight commodities or domestic stocks? In general, investors
are overweight domestic rather than commodities stocks. The bias was much
stronger in Europe rather than among the South American or U.S. clients; and
􀂄 What is your forecast return for Latin American equities until the end of 2009?
Clients on average expect regional stocks to gain only +10%. However, the
level of conviction is extremely low – probably the lowest we can remember.
Our economists have revised down GDP growth forecasts across the board
We now expect 2009 growth to be negative in Mexico (-0.5%) and Argentina
(-0.9%) and weaker in Brazil (+1.5%), Chile (+2.4%) and Colombia (+2.0%). Peru is
the only country where we expect strong growth (+9.3%). Consequently, we also
forecast a faster pace of interest rate cuts by Latin Central Banks.

Table of Contents
Overview ............................................................................................ 3
Looking for a better entry point ................................................................................................3
Model Portfolio .................................................................................. 4
Index target and valuation................................................................ 5
Trade ideas......................................................................................... 6
Long only .................................................................................................................................6
Risks ........................................................................................................................................6
Strategy outlook................................................................................ 7
A tentative start to the New Year..............................................................................................7
EM in sync with G7...................................................................................................................7
Investment strategy ..................................................................................................................9
Strategy spotlight............................................................................ 12
Overview................................................................................................................................12
2009 outlook: spring solace ....................................................................................................12
DB portfolio managers’ survey ...............................................................................................15
Equity Strategy.......................................................................................................................17
Economics ........................................................................................ 19
Overview................................................................................................................................19
Brazil ......................................................................................................................................20
Mexico ...................................................................................................................................26
Chile .......................................................................................................................................32
Argentina................................................................................................................................35
Colombia................................................................................................................................40
Peru........................................................................................................................................43
Performance review ........................................................................ 46
DB Model Portfolio .................................................................................................................46
Latam Equity Strategy reports guide ............................................ 47