Brazil Economic Fix Will Fuel Buying Opportunity, JPMorgan Says

  • Policy makers must restore investor confidence, Bareau says
  • Brazil's local government bonds may be particularly attractive

Buying opportunities in Brazilian assets may appear next year as the country regains its economic footing, according to JPMorgan Investment Management.

While volatility in Latin American securities is soaring amid a broader emerging-market selloff driven by concern over economic growth, next year should be better for the region as a whole, and particularly Brazil, said Pierre-Yves Bareau, the head of the emerging-market debt at JPMorgan Chase & Co.’s asset-management unit, which oversees $42 billion in investments.

Brazil’s currency, the real, has plummeted to a record low as the country suffers from its steepest recession in 25 years, its bond risk is rising and local yields are climbing to the highest since at least 2007. Policy makers need to create the political consensus to shore up the country’s budget, spur economic growth, curb inflation and restore investors’ confidence, feats that should be possible to pull off, according to Bareau.

“You need to have someone that can give you some confidence that they have a plan to get growth back,” he said in an interview. “Some people may be buying before, because the valuation will be enough, but the big catalyst is really this.”

Bareau cited Brazil’s local government bonds, which currently yield about 16.2 percent for notes maturing in 10 years, as potentially attractive for investors once the country gets on the right track. At the moment, it’s too early for money managers to buy into the market, he said.

There are compelling investment opportunities in Mexico and the Caribbean, he said, with the Dominican Republic a notable standout. He sees less reason to invest in Colombia, where the current account deficit is widening because of the drop in prices for its oil exports.

Volatility in Latin American assets will come mostly from global events that affect the region, such as the decline in the price of commodities, the slowdown of China’s economy and the potential increase in interest rates by the Federal Reserve, Bareau said.

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