Chanos Says Petrobras, Vale Are Two of His Favorite Shorts

Jim Chanos, who oversees $6 billion at Kynikos Associates Ltd., said he’s betting against Brazil’s Petroleo Brazileiro SA (VALE5) and Vale SA (VALE3), adding that investors buying the stocks risk subsidizing failed government policies.

“Increasingly, these state and capitalist marriages end up giving capitalists the short end of the stick,” the hedge-fund manager said at the Ira Sohn Investment Conference in London today. While Brazil is “resource-rich,” its state-backed companies are overvalued, Chanos added.

Petroleo Brasileiro’s annual expenses are eating up its cash, Chanos said. Investors betting that the company’s shares will rise are assuming that future oil exploration will boost returns while production is actually declining, he said.

Vale, the world’s biggest iron-ore producer, is reliant on exports to China, Chanos said. With growth in the Asian nation slowing, Vale’s prospects are worsening, he said.

“This is a company expanding into a glut that is about to fall,” he told the conference.

To contact the reporter on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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