Week ended  December25th 2009            EDDEZ252009.doc

Editorial: BOVESPA versus NYSE

The table below compares the performance of the Brazilian stock market, Bovespa vs. the world’s largest stock market, NYSE. The comparison is based on their main indexes, IBOVESPA and DOW JONES and their variations during the years 2008 and 2009.

The year 2009 was the one of recovery from the disaster of 2008, caused the financial crisis that started in the United States. But for the U.S. stock market, 2008 opened strong, with the peak occurring early in January: the Dow Jones  was at 13,000 points, although a crisis had been predicted at least two years earlier: “March 2007:   Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end.

He said “The U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end:  "The delinquency of subprime mortgages could cause problems for the economy, especially with the fall in housing prices in the United States.”

Greenspan’s warning materialized during the year 2008, when the Dow Jones fell in September-October to 7,500 points, losing 19%.

The peak of the Bovespa index in 2008 occurred five months after the peak of the Dow Jones; of course, many professional American investors, better informed, left US markets and invested in Brazil. Subsequently they left Brazilian equities and bought U.S. government bonds, the last refuge of all crisis in the world  market. The Bovespa index then fell to its lowest value in 2008, 29,435 points in October, a decline of 44,081 points from the peak in May, or 60%. Many neophytes sold their shares in Brazil at that time, realizing large losses.

2009 is seen as the year of recovery of world economies. All governments seem to have abandoned free market ideologies and remembered the theories of the English economist John Maynard Keynes thus intervening heavily in the economies of their countries. Bovespa responded promptly and in 2009 rose from 37,549 points in the beginning of 2009 to close on 23 December at 67,588 points, an increase of 80%. Room for further growth in 2010 is not as great, since stock prices in Brazil are now very high. The top six stocks in the Bovespa index, respectively, Petrobras, Unibanco, Itau-Unibanco, Gerdau, Pão de Açúcar  BMFBOVESPA and Bradesco have an average Price Earnings (P/E) Ratio of 21,  very close to the P/E of the NYSE.

Happy New Year to our clients, readers and friends!