Bovespa In November, Part Ii

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, of the fourteen moths represented. However, October ’09 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

R$ billions

200.00

October '08 - November '09

150.00 100.00 50.00 0.00 09 vNo 9 -0 ct O 09 pSe 09 gAu 9 l-0 Ju 09 nJu 9 -0 ay M 9 r- 0 Ap 9 -0 ar M 09 bFe 09 nJa 08 cDe 08 vNo 8 -0 ct O

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

R$ 000's

$6,000,000 $4,000,000 $2,000,000 $0 -$2,000,000 -$4,000,000

ov -0 8 D ec -0 8 Ja n09 Fe b09 M ar -0 9 A pr -0 9 M ay -0 9 Ju n09 Ju l-0 9 A ug -0 9 S ep -0 9 O ct -0 9 N ov -0 9

N

O

ct -

08

-$6,000,000

Foreigners

Source: Bovespa

Individuals

Institutional

Fin Insts

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 v No

ct O

pt Se

g Au

ly Ju

ay

ne Ju

M

ch ar

8 '0

8 '0

8 '0

ril Ap

M

b Fe

n Ja

c De

v No

ct O

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, and the Financial Institutions category accounts for most of the remaining 10%. Figure 4 Individual 30.3% Source: Bovespa

Market Participations, November Foreigner Institutional Fin Companies Inst 29.5% 27.7% 10.1% 2.3%

Other 0.1%

Figure 5 represents the daily net investment of each of the categories. Figure 5 800000

Market Participants (Daily Net Investment) November, 2009

600000 400000

0

-400000 -600000

09 20 9/ /2 11 09 20 7/ /2 11 09 20 5/ /2 11 09 20 3/ /2 11 09 20 1/ /2 11 09 20 9/ /1 11 09 20 7/ /1 11 09 20 5/ /1 11 09 20 3/ /1 11 09 20 1/ /1 9 11 00 /2 /9 11 9 00 /2 /7 11 9 00 /2 /5 11 09 20 3/

-200000

/ 11

R$ ´000's

200000

-800000 -1000000 -1200000

Source: Bovespa

Individual

Institutional

Foreigner

Company

Fin Inst

Other

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.