BlackRock Inc. (BLK)’s Will Landers, who oversees $4.5 billion in Latin American stocks, said his top picks in a cheap Brazilian equity market include banks such as Itau Unibanco Holding SA (ITUB4) and Banco Bradesco SA. (BBDC4)
“This is a sector that’s cheap, that’s got some sector-specific catalysts, that’s got great management teams, big focus on client business, but focus on doing so in a profitable way,” Landers said today in an interview in Sao Paulo. “Itau is our biggest position.”
Banks are a bargain as loan delinquencies fall and competition from state-owned lenders wanes, Landers said. Itau, Brazil’s largest bank by market value, and Bradesco have capital to grow, while pressure on their margins is lower as federally controlled bank lending slows, he said.
BlackRock has backed out of holdings in telecommunications, an industry poised for consolidation, and aerospace, where Embraer SA (EMBR3) profits probably are getting squeezed by aggressive bids for business, Landers said. Banks benefited when the central bank increased the Selic benchmark rate to 10 percent last month from 7.25 percent in April.
Itau rose 1 percent this year, valuing the company at 149.7 billion reais ($64 billion) compared with a 12 percent drop for Bradesco. Brazil’s Ibovespa benchmark index declined 18 percent.
Itau’s loans more than 90 days overdue declined for a fifth straight quarter to 3.9 percent in the three months ended in September, according to its earning statement. The Sao Paulo-based bank has been shifting to less risky credit lines such as mortgages and payroll loans, and away from auto finance, after default rates on consumer loans in Brazil reached a record in May 2012.
State-controlled banks including Banco do Brasil SA and Caixa Economica Federal were expanding their loan books faster than privately-owned banks while they cut lending interest rates as President Dilma Rousseff sought to revive a cooling economy, which contracted 0.5 percent in the third quarter.
BlackRock is enthusiastic about BB Seguridade Participacoes SA (BBSE3), a holding company that invests in insurance, Landers said. That’s not a heavily regulated market and should grow at rates of at least 10 percent for the foreseeable future, about three to four years, he said.
“Insurance products are very underpenetrated in Brazil,” Landers said. “There is a big focus for Banco do Brasil to increase the number of products per clients.”
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