20 February 2009
Market Monthly Monitor (M3)
Brazil: think global but
buy local
We highlight 3 themes and 5 stocks:
1) Lower interest rates: Banco do Brazil
(financials) and Localiza (car rental); 2)
Consumer trade down: Natura
(cosmetics); 3) Housing deficit: PDG
Realty and MRV.
We have a strong preference for domestic over commodity stocks.
Guilherme Paiva, CFA
Strategist
(1) 212 250 2873
guilherme.paiva@db.com
Jose Carlos Faria
Research Analyst
(55) 11 2113 5185
jose.faria@db.com
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
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Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
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
Our M3 reports focus on Equity Strategy & Economics for a specific country
We have published our second Monthly Market Monitor (M3) in 2009. We plan to
regularly publish an M3 report with our Equity Strategy and Economics views for
one of the six countries that are part of the MSCI Latin America index (Brazil,
Mexico, Chile, Argentina, Peru and Colombia) during the first half of the year.
Top-down equity investment ideas and market analysis preference,
The M3 can be divided in two main sections:
.. A forward-looking segment in which we highlight: a) our index target and
recommendation for the equity market, b) the medium-term macro-economic
outlook for the country and c) investment themes and related stocks; and
.. An equity market and economic guide in which we highlight: a) the main
equity indices and their members, b) liquidity and corporate governance
trends and c) the macroeconomic and policy background of the country.
We recommend an overweight in Brazilian equities?
Our 2009 year-end target for the Bovespa index still is 45,000 points for an
estimated total return (ETR) of +16% in local currency terms. Consequently, we
recommend an overweight position in Brazilian stocks based on three arguments:
1) Resilient domestic growth: the Brazilian economy should rebound in 2H of
the year and grow +1.2% in 2009 and +3.5% in 2010 supported by
aggressive monetary easing;
2) Valuations: domestic oriented stocks trade at attractive 4.7x Ebitda and 8.7x
earnings ?both figures more than 1.0 standard deviation below their 9-year
historical means;
3) Earnings growth: we forecast Brazilian stocks should grow earnings by
almost +20% in 2010 supported by a gradual rebound in commodity prices
and a pick up in domestic consumption.
?with a strong preference for domestic over commodity stocks
Our analysis suggests domestic stocks currently trade at a 25% discount or 1.0
standard deviation below their historical means while commodity stocks trade at a
24% premium or 0.6 standard deviation above. Investors appear to have bid up
commodity stocks in anticipation of a new commodity 搒uper-cycle?
We believe that it is too early to do that because 1) we haven抰 seen any signs of a
trough in the level of global economic activity being formed yet and 2) we only
expect the world economy to grow at trend in 2011 at the earliest.

Table of Contents
Overview ............................................................................................ 3
Brazil: think global but buy local ................................................................................................3
Latin America: target, valuation and performance summary.....................................................4
Equity Strategy.................................................................................. 5
Index target and recommendation ............................................................................................5
Valuation ..................................................................................................................................6
Investment themes.................................................................................................................12
Correlations............................................................................................................................14
Macro outlook.................................................................................. 15
Economic activity ....................................................................................................................15
Inflation ..................................................................................................................................17
Monetary policy ......................................................................................................................18
External sector ........................................................................................................................18
Equity guide..................................................................................... 21
Indices....................................................................................................................................21
Index performance..................................................................................................................21
Market size and liquidity..........................................................................................................23
Market participants .................................................................................................................24
Corporate governance.............................................................................................................24
Index sector weights and market cap .....................................................................................26
Stock weights .........................................................................................................................27
Stock liquidity.........................................................................................................................27
Stock performance..................................................................................................................28
Appendix – Company descriptions..........................................................................................31
Macro background .......................................................................... 39
Economic growth....................................................................................................................39
Inflation ..................................................................................................................................42
Monetary policy ......................................................................................................................45
External sector ........................................................................................................................47
Fiscal accounts.......................................................................................................................50
Latam Equity Strategy reports guide ............................................ 54