Fund Managers Have High Expectations for Brazilian Equities

RIO DE JANEIRO, BRAZIL – Citywire Americas writes in its latest report that fund managers and investors in the LatAm market have high expectations for Brazilian equity markets following a marginal economic recovery, pension reform and lowered interest rates.

According to Bank of America Merrill Lynch’s fund manager survey, 77 percent of investors surveyed expect Brazilian equities to outperform in the next six months, up from 70 percent last month.

This is in line with expectations from almost 90 percent of respondents who foresee the Brazilian stock exchange index will hit 110,000 by the end of the year.

Two-thirds of respondents were confident of an interest rate drop of 50 basis points, an estimate that has not impacted expectations that the Brazilian real would continue to hover in the 3.6 to 3.8 per dollar range by the end of the year, according to the report. The report also stated that no investor envisions a Brazilian Real over 4 to the dollar, situating themselves for a risky market environment.

Respondents also expressed optimism over the passage of the pension reform bill, a landmark overhaul of the Brazilian pension system set to save R$900 billion, which passed with a wide majority in the Lower House of Congress on July 10th. The bill is expected to pass the Senate in the third quarter.

Meanwhile, Mexico’s political issues have worried investors. The report showed that 63 percent of respondents believed “government decisions” to be the biggest risk in the country, which is double the previous month.

The Mexican Finance Minister’s unexpected resignation added to investor risk in the country. Coupled with uncertainty over Mexico’s investment-grade rating, one-third of the survey respondents expressed their wariness over its future sovereign debt rating.

Despite the concern over investment in Mexico, survey respondents’ confidence that equities in the country were a good investment increased from 11 percent last month to 30 percent. Fewer also believed that local nominal bonds would outperform, decreasing from 44 percent last month to 30 percent, according to the report.

According to investors, the consumer discretionary and financial sectors represent the most overburdened LatAm sectors within equity markets.

Investors were divided on the largest risks in the region: 23 percent saw the ongoing American trade war to be the most detrimental factor, while 20 percent chose China and commodities and 20 percent saw Federal policy mistakes as the most harmful.

Low growth and the possibility of a recession in the United States were also underscored, according to the report.

The LatAm fund manager survey tallied responses from a total of 30 panelists with approximately US$71 billion in assets under management in early July.

(Source: Citywire Americas)