Gerdau, Tam Set to Rise on Demand After Rio Olympics Victory

Brazil’s planned $11 billion in infrastructure spending for Rio de Janeiro’s 2016 Olympic Games may increase demand for steel products from Gerdau SA, boost passenger traffic at Tam SA and fuel purchases at Dufry South America Ltd stores.

Builders Brookfield Incorporacoes SA, CR2 Empreendimentos Imobiliarios SA, Joao Fortes Engenharia SA and Cyrela Brazil Realty SA will also gain as their projects focus on Rio, investors say.

“Short-term boost to stock prices from the euphoria, long- term support for growth of the economy – that’s what this is all about,” Citigroup Inc. strategist Geoffrey Dennis said in a telephone interview from New York.

Brazil’s Bovespa was the world’s best-performing major index on Oct. 2 when Rio was awarded the 2016 Summer Olympic Games, posting a 1.2 percent rise. The Bovespa has jumped 63 percent so far this year, compared with an 18 percent rise in the MSCI World Index of 23 developed countries. The real, the best-performing emerging-market currency against the dollar this year, rose 0.3 percent to 1.7820.

Cyrela Brazil Realty SA Empreendimentos e Participacoes and airline Tam SA were among the leading gainers on Oct. 2. Localiza Rent a Car SA rose the most in six weeks and hotel operator Hoteis Othon SA soared 78 percent.

Madrid, Tokyo

Rio’s victory over Chicago, Madrid and Tokyo will help sustain Brazil’s growth by injecting $51.1 billion into Latin America’s largest economy through 2027 and add 120,000 jobs annually through 2016, according to studies by a Sao Paulo business school for the Ministry of Sports. The Olympic Games will add 1 percent to gross domestic product in coming years, Finance Minister Guido Mantega said yesterday. The 2014 World Cup, which Brazil will host, will add another 1 percent to GDP, Mantega said.

The celebrations may last “a few days” as investors weigh the benefits to steelmakers and cement producers from spending on stadiums and transport projects, and how the influx of visitors will boost airlines and retailers, Dennis said.

Gerdau’s long steel products will be used in infrastructure such as new subway lines and construction of sports venues, said Pedro Galdi, an analyst at SLW Corretora in Sao Paulo.

“Gerdau is an obvious gainer, because the types of steel it makes are exactly what will be necessary for many of the Olympics projects,” Galdi said in a phone interview.

Cia. Siderurgica Nacional SA, Brazil’s third-biggest steelmaker, and Usinas Siderurgicas de Minas Gerais SA, or Usiminas, which make flat steel used in subway cars and in the auto industry, will also increase their sales, he said.

Companies such as Randon Participacoes SA and Iochpe Maxion SA, which make parts for vehicles, and bus maker Marcopolo SA, also stand to gain from the major expansion planned for Rio’s transport systems, Galdi said.

Lula

President Luiz Inacio Lula da Silva adopted U.S. President Barack Obama’s slogan, “Yes We Can,” to address doubts the government can get Rio ready to host its biggest international event ever. Lula pledged to renovate the city’s state-run international airport and unclog traffic-choked streets by extending public transport, including the Rio’s inefficient subway. With 7 million people, Rio’s subway network has just two lines with 33 stations.

“Steel companies will benefit from the boom, as well as potentially some of the homebuilders,” William Landers, who oversees $6.5 billion in Latin American stocks at BlackRock Inc., wrote by e-mail. “Closer to the games, airlines and car rental will clearly benefit.”

Lojas Renner

Rio newspapers over the weekend ran dozens of ads from cable TV providers and banks to cookie companies and tire makers congratulating the city on its victory. Lojas Renner SA, Brazil’s biggest publicly traded clothing retailer, published a full-page ad with the translation of “Wonderful City,” as Rio de Janeiro is known, in several languages.

Previ, Brazil’s largest pension fund, plans to invest in infrastructure projects for the games through Investimentos e Participacoes em Infra-Estrutura SA, or Invepar, which owns the concession for the Rio de Janeiro subway, Fabio Moser, Previ’s chief investment officer, said by telephone from Curitiba.

Invepar is looking to invest in airports as the government signaled it may privatize them, Moser said, declining to elaborate because the bidding hasn’t officially started.

Bill Rudman, who helps manage $1.5 billion in emerging- market stocks at Blackfriars Asset Management, said hotels will be the big beneficiaries.

Increased spending will boost demand for capital and may lead to higher short-term interest rates, Citigroup’s Dennis said.

Rio Victory

Rio’s victory comes after Moody’s Investors Service boosted Brazil’s rating to Baa3, the lowest investment-grade, on Sept. 22, one year after the global credit crisis. The nation’s gross domestic product grew more than analysts forecast in the second quarter, signaling the economy is recovering from the global recession faster than other developing countries.

Brazilian economists forecast Brazil’s economy will expand 4.5 percent next year, up from a previous forecast for 4.2 percent growth, according to a central bank survey of about 100 economists published Sept. 28. Lula said yesterday he expects Brazil to post economic growth this year and a 5 percent expansion in GDP next year.

The games are another symbol of Brazil’s arrival as a global power after decades of boom-bust cycles, as well as a symbol of the evolution of emerging markets, Dennis said.

“Its incredibly symptomatic of the improving outlook and growing role of the emerging markets,” he said.