News that the EU and the UK had agreed a 21-month Brexit transition deal propelled sterling higher yesterday but some gains were subsequently lost as doubts crept in. Sterling faces a difficult week between today's CPI, tomorrow's BoE meeting and the EU summit in Brussels on Thursday and Friday.
Article / 14 August 2014 at 7:50 GMT

Petrobras leads EM equity picks to fifth straight outperforming week

Head of Equity Strategy / Saxo Bank
  • Emerging market equity picks model outperforms MSCI Emerging Market Index
  • Fifth straight week outperformed MSCI
  • Brazilian oil major Petrobras leads charge with 12-month return forecast of 20%

By Peter Garnry

Our model raises Brazilian oil major Petrobras to top equity pick in emerging markets with a 12-month return forecast of 20%. Despite the 9% decline in Brent crude prices since the peak in June, prices are still around the long-term averages from 2012.

Bullish outlook on growing production

The main driver behind the model bullish outlook for Petrobras is the attractive valuation on forward EV/EBITDA and above average industry growth driven by growing production. 

The latest figures from July confirmed the underlying positive development in Petrobras' oil production with domestic production up 2% month-on-month. The high expected growth in production is illustrated by consensus estimates expecting negative free cash flows for the next three years.

Emerging markets equities top pick

Another week with alpha

Our portfolio of emerging market equity picks is up 1.3% the past week with the MSCI Emerging Market Index down 1.3%. The strong performance was driven by gains in Empresas CMPC (+6.4%), Ultrapar (+4.8%) and America Movil SAB (+4.8%).

Emerging market performance

As a result of the past week's results, our emerging market portfolio has outperformed the benchmark for five straight weeks. The portfolio is up 8.6%  since inception compared to 0.5% for the MSCI Emerging Market Index.

-- Edited by Martin O'Rourke

Peter Garnry is head of equity strategy at Saxo Bank
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Quant Corner - Emerging Market equities

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