Bovespa in November – Part II

The purpose of this report is to review the activity in the Bovespa in November, 2009
compared with previous months, and compare the relevant categories of investors i.e.
Foreigners, Institutional, Individual etc. to see which category are the currently driving
the market. These factors are particularly germane presently, as the government has
chosen to discourage foreign investors through the imposition of an IOF tax.

In a month when the IBovespa rose by 9.2%, it would be surprising to see low level
market activity, and indeed, as Figure 1 shows, November ranks only second in terms of
volumes only to the preceding month. However, October was an atypical month as it
commenced with the euphoria of the 2016 Olympic Games, there was the R$14 billion
Banco Santander share issue, and the Brazilian Government`s institution of the IOF tax
caused incremental uncertainties and additional volumes. Thus, the decline of 20% in
activity is only surprising in the sense that it was not higher.

Figure 1.

Bovespa - Monthly Volumes

October '08 - November '09
200.00

150.00
R$ billions

100.00

50.00

0.00
De

Ju

Au

Se
O

No

Ja

Fe

Ap 9

Ju 9

No
ct
ct

ar

ay

l-0
n-

n-

g-

p-
b-
c-

r- 0
v-

v-
-0

-0
-0

-0
09

09
08

09
9

09
08

09

09
8

Source: Bovespa

The following graph tracks the monthly net investment figures per category of investor.
The first point to note is the importance of foreign investors in March, April and May
(when net foreign investment hit a high of R$ 6 billion) of 2009 in driving the market at a
time when there were still significant market uncertainties due to the doubtful outcome of
the international crisis. Figure 2 also shows the decline in foreign activity falling below
R$ 1 billion in November for the first time since February ’09. The graph also points to
financial institutions and institutional as having contributed strongly to the rise in the
Ibovespa in November, with individuals being negative net investors.
Figure 2
Monthly Net Investment (Oct '08 - Nov '09)
$8,000,000

$6,000,000

$4,000,000
R$ 000's

$2,000,000

$0

-$2,000,000

-$4,000,000

-$6,000,000

9
08

9
9
09
08

9
8

09

09

9
9
-0

-0

-0

-0
-0
-0

l-0
-0

-0
-

b-
-

n-

n-
ay
ar
ov

ov
ug
pr

ep
ec
ct

ct
Ju
Ja

Ju
Fe

M
O

O
A

M
N

N
A
D

S
Foreigners Individuals Institutional Fin Insts
Source: Bovespa

In Figure 3 we track the relationship between the flow of investment by foreigners, as

compared to the Ibovespa. Not surprisingly, due to the imposition of the IOF tax, the
correlation between foreign activity and the Ibovespa is at its lowest level (0.28) since
December 2008.

Figure 3
Correlation: Flow of Foreign Investment $/ Ibovespa
Oct '08 - Nov '09
1
0.8
0.6
0.4
0.2
0
De

Ap

Ju

Au
O

No

Ja

Fe

Ju

Se

No
ar
ct

ct
ay

ly
n

ne

g
ril
b
c

pt
v

v
ch
'0

'0
'0
8

8
8

Source: Bovespa

Figure 4, below shows the participation of the investor categories during the month of
November. The three investor categories of Institutional, Individual and Foreigners
together account for nearly 90% of the market, with Financial Institutions having
increased their participation to 10%.
 Figure 4
Market Participations, November
Individual Foreigner Institutional Fin Companies Other
Inst
30.3% 29.5% 27.7% 10.1% 2.3% 0.1%
Source: Bovespa

Figure 5 represents the daily net investment of each of the categories.

Figure 5

800000
Market Participants (Daily Net Investment) November, 2009
600000
400000
200000
R$ ´000's

0
-200000
11

11

11

11

11

11

11

11

11

11

11

11

11

11
/

/5

/7

/9

/1

/1

/1

/1

/1

/2

/2

/2

/2

/2
3/

-400000
/2
/2

/2

7/
1/

3/

5/

9/

1/

3/

5/

7/

9/
20

00

00

00

20

20

20

20

20

20

20

20
20

20
09

9
9

09

09

09

09

09

09

09

09

09

09
-600000
-800000
-1000000
-1200000
Individual Institutional Foreigner Company Fin Inst Other
Source: Bovespa

We draw the conclusion that even with the tax on foreign investors, the Brazilian Stock
Market is living a highly positive moment. We will continue to monitor the situation.