The Stock Market in May

The government reported in May that the Brazilian economy had grown at an annual
rate of 10% in the first quarter of 2010. Investors rewarded the economy with a 6.6%
loss in valve for the month of May in Brazil’s stock exchange, as measured by the
IBovespa index. In general, we hold the opinion that monthly stock market ups and
downs are at best arbitrary, but it does give us an, at times, comparative time period to
review trends and assess the reasons why.

January -4,6%
February 1,7%
March 5,8%
April -4,0%
May -6,6%
Year 8,1%

The chart above shows the volatility that we have seen in recent months, with an
appreciation in March of 5.8%, followed by two months of sizeable losses of 4.0% in
April, and 6.6% in May. However, the market in May was more volatile than the month
end numbers show, with the Ibovespa down to 59,184 on May 25th, being a loss of
13.7% for the year, and 12.4% for the month, before struggling back to 63,047 at month
end.

Figure 1 below shows the performance of six diverse stock markets using the closing
index of March 31st 2010 as 100 % for all indices. The indices chosen were the Dow
Jones Industrial Average (“DJI”), and the Standard and Poors 500 (“S&P 500”) of the
USA, the Financial Times and London Stock Exchange 100 Index (“FTSE 100”) of the
United Kingdom, The Cotation Assistee en Continu 40 (“CAC 40”) of France, China`s
Hang Seng Index (“HSI”), and Brazil`s Indice da Bolsa de Valores de Sao Paulo
(“Ibovespa”).

The period covered, April and May, 2010 has been difficult for most equity markets, but
the Brazilian market, characterized as a market that increased substantially in value in
2009, at least at present does not offer significant opportunity for incremental value.
The main reasons are a general decrease in world liquidity as countries are becoming
more concerned with increasing deficits than with stimulating their own economies. The
second issue is that of the problematic European markets to which was added Hungary
last week, which has caused the flight of capital to safe havens, and presumably to fixed
income rather than equity investments as stock market suffering is universal.

The graph highlights Ibovespa`s fall which has been further than any of the other five
markets, falling 12.1%. The CAC 40 is the second worst off having fallen by 11.9%,
and the UK`s FTSE is next having lost 9.1%. The three better performers are not much
better off, with the S&P down 8.4%, the HIS down 8.2%, and the DJI down 7.7%.

We note further that there have been no significant changes either for better or worse
since the end of May, and notwithstanding significant improvement in corporate
earnings in Brazil, the stock market valuation projections for 2010 are no better than
fixed income returns. Thus the short term outlook remains gloomy.
Figure 1

Stock Markets in Crisis

April 1 - June 1

110.0%
105.0%
100.0%
95.0%
90.0%
85.0%
80.0%
3/

4/

4/

4/

4/

5/

5/

5/

5/
31

7/

14

21

28

5/

12

19

26
20

20
/2

/2
/2

/2

/2

/2

/2
01

10

01

01

01

10

01

01

01
DJI FTSE CAC 40 HSI Ibovespa S&P
0

0
0