- Investor says real is his favorite emerging-market currency
- President Dilma Rousseff could be forced aside by mid-May
Franklin Templeton is increasing its investments in Brazil, betting the expected ouster of President Dilma Rousseff this month will boost the country’s assets.
The impact of Rousseff’s potential removal isn’t yet fully priced into Brazilian stocks, Mark Mobius, executive chairman of the fund manager’s Emerging Markets Group, said in a television interview with Bloomberg Markets Middle East. The real, which has rallied 15 percent this year, is his favorite emerging-market currency, he said.
Rousseff could be forced to temporarily step aside by mid-May if a simple majority of senators votes that she should stand trial for allegedly doctoring fiscal accounts to mask the size of the budget deficit. Vice President Michel Temer, who would be her successor, is assembling a market-friendly team that investors hope will quickly address Brazil’s economic woes. Such bets have already started to fuel the rally in the real, though members of Rousseff’s party have said his administration would trim welfare programs to appease business interests.
“We are adding money to Brazil,” Mobius said. “If you look at where we’re heading compared to previous highs, we’ve got a long way to go. Maybe another 100 to 200 percent.”
Brazil’s benchmark Ibovespa has risen nearly 25 percent this year on investor speculation that the removal of Rousseff will usher in a new government better able to tackle the nation’s economic and financial woes. The country recorded its widest-ever primary budget deficit for the first quarter, official figures showed last month, while a slowdown in commodities has hurt one of Brazil’s biggest exports. Corruption charges have also plagued national oil company Petroleo Brasileiro SA.
Russia stocks may also benefit from large inflows if there are any moves by the U.S. or European Union to ease or lift sanctions, Mobius said. The Russian benchmark Micex Index is up nearly 11 percent this year and trading near a record high. Analysts have upgraded their earnings forecasts as rebounding oil raises the likelihood the country will emerge from a recession more quickly.
“The other big opportunity is Russia, because it has been closed to us and many other investors because of sanctions,” Mobius said. “If sanctions are lifted then you could see a big, big surge in Russian stocks.”