One of the best ways to stay up to date on the economic outlook and outlook is to attend the monthly fund managers meetings. Two interesting events took place today: WHG and SPX Capital.
WHG is a recent manager, but with a very experienced team. Her monthly presentation is a real lesson.
At today’s meeting, WHG gave its opinion on a much talked about question: is the Brazilian stock market cheap?
Contrary to what common sense would say, the best way to understand if the stock market is cheap is not to listen to equity managers.
Almost all stock managers always say that the stock market is cheap or that there are many stocks with potential.
Those who say the bag is expensive don’t last in this business. After all, which investor would remain invested in the fund of the manager who claims that his product is expensive?
For hedge fund managers, the situation is different. They have the flexibility to go long, short, or simply not own.
Therefore, the most impartial opinion about the exchange price level is found in hedge fund managers.
At today’s meeting, WHG explained its opinion on the American and Brazilian stock exchanges. The recording of this meeting is on link below.
According to manager Andrew Reider, in the case of the American stock exchange, the Price/Earnings multiple of 15 does not seem high, considering a historical average. However, there is risk of a revision in earnings growth and this revision could cause the multiple to rise, which could lead to further price drops to adjust to the fair multiple.
As for the Brazilian case, Reider makes two considerations. First, that the Brazilian stock exchange would not be very cheap as many argue. It is necessary to make the adjustment of the commodities and financials that have lower multiples.
However, for Brazil, there is a risk that earnings revisions will be positive. These revisions, together with a more restrained international and national scenario, could take our stock exchange to the level of 150 thousand points in 2023.
That would represent an appreciation of about 28% from today’s close. Undoubtedly, an interesting upside potential for the Ibovespa.
However, it is necessary to consider the assumptions and risks involved in this projection. Therefore, exposure to equities would only be indicated for investors with a moderate to aggressive risk profile and with moderate proportions in the portfolio.
Michael viriato is an investment advisor and founding partner of Investor’s House
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