BRASILIA/MEXICO CITY, Dec 7 (Reuters) - Brazilian shares will probably extend their rise to approach all-time highs in 2017, outperforming Mexican stocks, as inflation and interest rates fall, a Reuters poll showed.
The median forecast of 13 strategists in the poll taken between Nov. 28 and Dec. 6 showed Brazil's benchmark Bovespa stock index gaining 18 percent to 72,000 by the end of 2017 from Tuesday's close. That would be its highest since 2011 and near its all-time peak of 73,516.
The Bovespa has risen 41 percent so far this year despite a recession that left 12 million unemployed.
The strategists' stock market forecast for what could be the third year of Brazil's worst downturn in at least 80 years was revised up from 65,000 in an October poll, even though the economic outlook has actually deteriorated in recent weeks.
The forecast for Mexico's IPC index was lowered to 49,300 for the end of 2017 from 52,000 in an October poll. The new figure would still be an all-time high, representing an increase of 9 percent from Tuesday's close.
Brazilian shares would probably benefit from a long series of interest rate cuts that economists expect the central bank to make in 2017. Economists in a separate Reuters poll forecast that the benchmark Selic rate would fall to 11.00 percent from 13.75 percent currently, easing credit costs for companies and reducing the allure of bonds over stocks for investors.
JPMorgan strategist Pedro Martins Junior sees room for double-digit earnings growth in Brazil in such a scenario, even as the recent rally has made stocks look expensive.
"It is correct to say that from a price-to-earnings perspective, Latin America's upside is limited," he wrote in a note. "But we believe that forward price-to-earnings don't tell the full story, given the low base of earnings to beat."
Uncertainty about whether Brazilian President Michel Temer can push economic reforms through Congress may weigh on the nation's shares, as might global volatility stemming from the policies of U.S. President-elect Donald Trump and that country's interest rates.
Mexico looks more vulnerable than Brazil, though, given Trump's proposals to erect a border wall and fears that he will push revisions of the North American Free Trade Agreement.
"There's a huge uncertainty," said Carlos Ponce Bustos, head of analysis at brokerage Ve por Mas in Mexico City. He added that Mexican companies risk a downturn in local consumption after forecasts for economic growth were reduced recently.
(Poll data: EQUITYPOLL1)
Other stories from the Reuters global stock markets poll: nL4N1E13VZ Reporting by Silvio Cascione; Editing by Lisa Von Ahn