Brazil Hedge-Fund Manager Who Called Real Rally Sees More Gains

  • Figueiredo breaks from consensus to see 9% advance in real
  • His flagship fund has beaten 98% of its peers this year

In the depths of Brazil’s world-worst market selloff last year, hedge-fund manager Luiz Fernando Figueiredo made a bold call. All the fretting about a dangerous financial crisis was way overblown, he said, and markets were ready to rebound. 

Now, after outsize rallies this year across Brazilian financial markets, Figueiredo doesn’t talk like a man who’s ready to cash in his chips. He argues there are more profits to be made, particularly in the currency, because the country’s 14.25 percent benchmark interest rate will lure growing numbers of yield-starved foreign investors now that concerns are easing about the government’s swelling deficits. Acting President Michel Temer immediately began pursuing steps to shore up fiscal accounts and stabilize the economy after replacing Dilma Rousseff when she was suspended in May to face an impeachment trial.

“As the economy heads in the right direction, it’s almost impossible that a country with obscenely high interest-rates doesn’t receive huge capital flows,” said Figueiredo, a former central bank director who founded Maua Capital in Sao Paulo in 2005.

Figueiredo sees the real climbing about 9 percent to 3 reais per dollar before the end of the year, contrasting with the consensus in a Bloomberg survey, which point to a weaker real in both this and next quarter. Those analysts, on average, see the currency dropping to 3.5 at the end of 2016. Options traders are similarly bearish, with the 3.6 percentage-point premium for the right to sell the currency in six months’ time placing it in the bottom five among its emerging-market peers.

Any gains would extend the 20 percent jump this year that’s almost double the advance in the next-best developing-world currency. The real’s rally is a turnaround from 2015, when it sank 33 percent, reaching an intraday record-low of 4.2478 per dollar in September. The real rose 1.3 percent to 3.2489 per dollar on Friday.

Figueiredo’s bullish call late last year has paid big dividends for his clients. Maua’s 241 million real ($73 million) flagship fund, which primarily invests in government and corporate bonds, has returned 16 percent so far in 2016, beating 98 percent of peers. The gains represent a snapback for Figueiredo after years of sub-par returns. In the past five years, the fund has trailed almost two-thirds of its rivals.

He wasn’t, of course, the only one who correctly called the bottom in Brazilian asset prices. In November, for example, JPMorgan Chase & Co.’s asset-management unit said the government’s local debt was too cheap to pass up. And in December, Societe Generale SA recommended buying the country’s foreign bonds.

Figueiredo’s been involved in Brazilian markets for decades, having started his career as a young stock broker while still finishing up his college studies. He entered the central bank alongside renowned hedge-fund manager Arminio Fraga in 1999, just months after the country devalued the real. Another crisis would surface three years later, when the looming election of labor leader Luiz Inacio Lula da Silva sparked widespread concern that the country would renege on its debts. Yields on its benchmark dollar bonds soared to more than 20 percent before Lula pledged to take steps to curb the budget deficit.

More than a decade later, Brazil is again struggling to rein in a widening deficit that has already cost the nation its investment-grade credit rating. While the economy remains mired in a deep recession, business and consumer confidence gauges have recently started to rebound and analysts surveyed by the central bank are predicting a return to growth in 2017.

Tops on Temer’s agenda now is legislation he’s seeking to push through Congress that would limit public spending growth to the rate of the previous year’s inflation.

The extent of the real’s rally “depends a lot on the magnitude of the reforms and fiscal adjustment this government will be able to make,” Figueiredo said.

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