Could Petrobras Deal Spark Brazilian Stock Rally? (PBR, EWZ)

Thomson Reuters quantitative analyst Mike Tarsala has an interesting piece out today on the potential impact of the Petrobras

deal on the Brazilian Bovespa stock index. The Brazilian oil giant is attempting to raise as much as $75 billion in what has become the largest stock offering in history. The proceeds will be used to fund the company's $224 billion investment program over the next five years. Tarsala believes that even a lukewarm Petrobras (

) offering may give the Bovespa stock index a lift in the coming weeks. Investors have been anticipating this dilutive deal for some time now, and as a result PBR has been a weight on the Bovespa. Petrobras is the second largest company on the 68-member Bovespa behind mining giant Vale

. It accounts for 9.9% of the index's weight. Combine that with the fact that PBR is the fourth worst performing stock on the Bovespa year-to-date, and it is not hard to imagine a case where even a moderate turnaround in PBR as a result of the deal overhang being removed could send the entire Bovespa higher. Year-to-date, PBR has lost 26.3%. Tarsala argues that, "All Petrobras has to do is stop working against the Bovespa and the index has a much better shot at new year highs." He also points out some reasons why this deal could be compelling for certain types of investors, thereby boosting PBR shares, going forward. These are listed below. 1. It's a truly unique deal for the biggest of investors that have a lot of capital to put to work. Furthermore, it is the only long-term bet of its kind for the sovereign wealth funds, hedge funds, and other big oil companies. 2. Brazil's stability is attractive. It has a strong economy, a growing consumer class, and little risk of nationalization. 3. Petrobras could have tremendous long-term scale. If all goes to plan, PBR could become the most important oil company in the world. Investors looking to play this potential catalyst in the Bovespa should consider buying the iShares MSCI Brazil Index ETF

.