Page 1 of 2

Volatility has returned to Brazil. Through much of last year and the first weeks of 2010, the nation’s benchmark Bolsa de Valores, Mercadorias e Futuros Bovespa index seemed capable of going in only one direction — up — but financial crises half a world away have reminded investors that what goes up can and often does come down.

The turbulence makes little sense in light of the fact that Brazil is less affected by external factors than ever, owing to robust domestic growth. “The most important highlight from this period is the continuous outperformance of consumer-­related stocks over the commodity producers,” explains Carlos Constantini, head of research at Itaú Securities in São Paulo.

“The second half of 2009 was wonderful — the market was on a nonstop tear,” adds Rodrigo Góes, co-head of research at BTG Pactual in São Paulo.

The Bovespa index hit 70,451.11 in January, a gain of 72.6 percent over one year earlier, then plunged to 62,762.70 the following month amid investor concerns that the debt crisis in Dubai and speculation of an even more serious situation in Greece would set back the world’s faltering economic recovery. Once it became apparent that those two crises could be contained, investors returned to Brazilian equities and sent the Bovespa soaring to 71,784.78 in April.

The rally didn’t last long. That month, China — one of Brazil’s primary trading partners — announced that it was curtailing its stimulus spending in an effort to cool its own overheated market; skittish investors, concerned about the impact a downturn in China would have on Brazil, abandoned Brazilian equities in search of safer havens. By May the index had plunged to 58,192.08.

“The Bovespa has recovered a bit, but volatility has been the norm and probably will continue to be,” Góes explains. “The fundamentals of the Brazilian economy are solid and would probably warrant higher valuations for the Bovespa, but the shaky global economic environment has been preventing it from performing better.”

Trying to make sense of the these wild gyrations has been challenging. Money managers need insight into the market’s mood swings, and investors say no firm does a better job of providing the type of research they deem essential than Itaú Securities, which leads the 2010 All-­Brazil Research Team, Institutional Investor’s seventh annual ranking of the nation’s top equity and fixed-­income analysts. Itaú, which captured second place last year, wins 14 total team positions, four more than in 2009.