Opinion on  Banco Ita Holding Financeira S.A. (ITU)     Sector: Financial  >  Industry: Regional Banks
Brazil to be regional powerhouse - Itau (ITU) Brazil's second biggest bank

Banco Itaú ( NYSE:ITU ) is Brazil's second largest banking company, having 11% market share. It is, like other Brazillian banks, headquartered in Sao Paulo. It is currently undergoing very strong growth due to Brazil's strength on the world trading markets (Brazil currently has a trading surplus of US$30Bn, rather than a trade deficit , as it had in the 1990s). Its current P/E is sensible at 13.64, (Unibanco, the next biggest Brazillian bank, has a P/E of 200+) and the company pays out respectable dividend, currently 1.3% of share price. Unibanco is well positioned to enjoy strong future growth, due to its position in a high-growth BRIC developing economy. Brazil currently has less than a quarter of the number of homes per capita compared to Mexico. It is anticipated that over the next few years, fueled by government subsidization, many more housing units will be built in former shanty towns, thereby increasing the amount of mortgages UBB sells, and increasing profits. Since Oct 14th 2002, the Brazillian bank's share price has rocketed from US$1.74 to US$24.69, while the company has managed sustained growth and payed out attractive dividends.

Brazil is currently the slowest growing BRIC (Brazil Russia India China) country.  This is mainly

due to very restrictive reguations on setting up and operating businesses.  For example it takes

150 days to set up a business in Brazil, due to paperwork.  Brazil is also one of the most eco-

friendly countries on the earth, which could help its tourist and international relations

credentials.  Brazil has so far not been hit by any SARS/Bird-flu pandemic, as chicken breeding

is less common than in Asia.  The huge mass of Brazillian bureacuracy is currently putting the

'brick' on the brake pedal.

On the other hand, the Chinese government has removed all regulations stopping economic growth,

including safety, quality and workers rights regulations (think lead-poisoned childrens toys). 

Even in government run projects, such as the Three Gorges Dam, cheap, low-quality materials have

been used to save on construction costs.  Also, Chinese industry dumps millions of tonnes of raw

industrial waste into rivers every year. Air pollution, especially in Hong Kong, is endangering

health, and the country takes only halphhazard measures to contain the SARS/Bird-flu virus

mutations, putting financial concerns before everything else.

Obviously, neither of these two situations can continue forever.  China's growth rate is

artificially inflated by a money-centered government, whereas the Brazillian economy is yet to

unlock its full potential.  When Brazil's government abolishes its restrictive practices (its

already starting: it will soon take only two weeks to set up a business), we will see Brazil's

growth rate rocket.  At the same time, due to European and American pressure, safety, employment

and merchandise quality regulations will be put on Chinese goods.  This could slow down

significantly the Chinese economy.

Also, Brazillian stocks are very cheap compared to Chinese ones, so you may as well snap them up

while you can: some Chinese companies have P/Es of 35+, while Itau Bank's P/E is sensible at just

13.

Good brazilian stocks include ERJ, ITU and UBB.

Good Luck,
~~~~Shane Halloran.

I wrote a blog entry on Wordpress explaining my rationale in recommending Brazillian and Latin American stocks: http://shanehalloran.wordpress.com/2008/02/12/brazil-as-good-... .