(Bloomberg) -- The three-month rebound in Brazilian stocks has further to run, at least if two veteran emerging-market investors are right.Mark Mobius and former BlackRock Inc. director Will Landers are among those calling for further gains in Latin America’s biggest equity market, betting low interest rates set the stage for a quick economic rebound. For Mobius, the Ibovespa index should reach its January all-time high by the end of the year, an accomplishment that Landers also sees as possible.“I am positive on Brazil,” said Mobius, who set up investment firm Mobius Capital Partners in 2018 after three decades at Franklin Templeton Investments. “The companies in which we have invested have been recovering quickly,” he said, citing retail, internet and technology firms.The Ibovespa index has bounced back about 57% from its March lows, but is still down 14% this year after the pandemic derailed the government’s reform agenda and stoked fiscal concern. Still, Mobius says local companies have benefited from a government that has eschewed the nationwide lockdowns pursued elsewhere in the world. Many states including Sao Paulo, Brazil’s richest, are gradually dismantling the limited restrictions that were imposed.Landers, now the head of Latin America equity strategy at Banco BTG Pactual SA’s asset-management unit, is turning overweight Brazilian stocks saying stronger-than-expected activity data, including retail sales, offer a silver lining for the economy. While he doesn’t have a target for the Ibovespa, he doesn’t rule out another record this year.“Why not?,” he said, adding he likes e-commerce firms, as well as banks. “We can resume the more positive bets for Brazil.”While bullish, both veterans agree keeping a close eye at the evolution of the pandemic is crucial for those long in the nation’s stocks. A global hotspot for the virus, Brazil trails only the U.S. with over 67,000 confirmed deaths and 1.7 million total cases. On Tuesday, President Jair Bolsonaro tested positive.Mobius says the top risk for local assets is a stricter lockdown that could disrupt production, and Landers says his firm is monitoring the U.S. numbers as a gauge for what is in store for Brazil.The Ibovespa is trading near a four-month high and briefly topped the 100,000 mark on Thursday morning, before giving back gains.(Updates to add market move in ninth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Brazil’s stocks and currency clocked up the biggest losses in the world as the coronavirus pandemic ravaged the nation during the first half. And few are brave enough to say it’s going to get much better in the second half.Battered by the second-highest number of Covid-19 cases in the world -- over 1.6 million -- President Jair Bolsonaro’s administration is struggling to put the economy back on track less than a year after the approval of a pension reform plan fueled optimism the country was on the way back from decades of profligacy.Even when the pandemic passes, the government will have to undo a series of stimulus measures to meet its fiscal targets, before convincing lawmakers to revive plans to overhaul the tax system and move forward with state-asset sales. In the meantime, the government has lurched from one political crisis to another as the virus ravages the country.“Brazil entered the current crisis with little room for stimulus and it will end up in a worse fiscal situation,” said Aurelio Bicalho, chief economist at Sao Paulo-based Vinland Capital. “The high level of public indebtedness heightens risk perception.”The Economy Ministry expects the government’s gross debt to reach 98.2% of gross domestic product this year, a 22.4-point increase from 2019. Not good news for a country trying to fix its fiscal accounts.Century RecessionVirus cases are rising faster in Latin America than anywhere else in the world and the World Bank expects the region to face the worst recession since at least 1901. While Brazil’s GDP is expected to shrink less than peers like Mexico, its assets were hit hard.Analysts surveyed by the central bank expect the Brazilian real to end the year at 5.20 per dollar, 1.6% stronger than current levels, but still about 23% down in 2020. It hasn’t fallen that much since 2015, when President Dilma Rousseff was impeached.The currency has nosedived as falling interest rates diminish its carry appeal. While it has retraced some of its losses from an all-time low in May, its implied volatility suggests traders are bracing for more swings.“They are facing three crises at the same time,” said Juan Prada, a currency strategist at Barclays in New York, pointing to the pandemic, the economic contraction and the political situation. “All of these aspects point to downside risk for the currency.”Stocks UpsideThe Ibovespa stock index fell 18% in the first half and strategists see room for some gains in coming months as the low-rate environment is expected to drive inflows. On average, they predict the benchmark will finish the year at 100,000, a Bloomberg survey showed. While that’s an 1% advance from where it stood at the end of June, the gauge would still be stuck with a loss for the year of 13.5%.Stocks would have fallen still further if the central bank hadn’t cut rates to a record low.“Brazil’s key rate will likely be at stimulative levels for a good time, which leaves real assets such as equities with greater upside,” said Marco Antonio Mecchi, a 25-year market veteran who helped found MZK Investimentos in Sao Paulo.Tracking PeersUnlike other assets, Brazil’s bonds moved in line with peers in the first half, as $350 billion in international reserves gave comfort to bondholders. The nation’s dollar bonds have returned losses of about 0.9% this year, similar to their emerging-market peers.“We should expect about the same performance as in the past six months,” said William Snead, an analyst at BBVA in New York. “There is not much upside in the short term.”Fiscal and MonetarySwap-rates traders are focused on the mounting fiscal burden, which could hit the long end of the curve.In the first half, the curve steepened as the central bank cut rates more aggressively than expected. Short-term rates fell more than 200 basis points while longer rates rose 30 to 40 basis points. Officials have signaled the end of the easing cycle is near and the curve is pricing in less than 50% chance of a final 25 basis point rate cut in August.“There remains risk that the central bank could embark on more aggressive easing measures, in addition to what they already have taken,” said Sacha Tihanyi, the deputy head of emerging markets strategy at TD Securities in Toronto. “What will be important is the speed at which the government returns fiscal accounts to pre-Covid levels.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Latin America has become the epicenter of the coronavirus pandemic, but that’s not stopping investors from buying its exchange-traded funds with gusto.