Brazil Raises Stock Mutual Funds’ Overseas Investment Limits

Brazil’s securities regulator gave greater leeway for mutual funds to invest abroad after local stocks plunged to a five-year low and volatility surged.

Brazilian stock funds open to the general public will be allowed to put 20 percent of their assets overseas while funds for clients who have at least 1 million reais ($369.8 million) in investments will be allowed to allocate as much as 40 percent to foreign holdings, regulators said. The new limits are double the previous thresholds.

“There is a big need for diversification now that the Brazilian market has grown and is more open,” Ana Novaes, the director of the regulator, known as the CVM, told reporters Wednesday in Rio de Janeiro. “If the country wants to be an important player in the global scenario, it has to not only receive foreign investments, but also to let its citizens invest abroad.”

Investing in foreign assets is especially attractive for fund managers after the Ibovespa, Brazil’s benchmark equity gauge, tumbled into a bear market twice this year as volatility surged, according to Carlos Massaru Takahashi, president of Banco do Brasil’s asset management arm, which is the biggest in the country with 55 billion reais ($200 billion) in assets.

‘Very interesting’

“After so much volatility, diversification is very interesting and relevant,” Takahashi said in a phone interview from Rio de Janeiro, where his firm, known as BB DTVM, is based.

The Ibovespa’s 50-day volatility rose to 38.3 percent today from 16.4 percent in August, data compiled by Bloomberg show. The equity gauge extended a two-day advance to 4 percent at 1:35 p.m. in Sao Paulo after incoming Finance Minister Joaquim Levy said the Brazilian government needs to reduce spending, fueling speculation that the government’s new economic team will promote fiscal changes to restore growth.

The previous limits for funds to invest abroad were set in 2004, according to the CVM. The wider threshold is positive and isn’t necessarily linked to the more challenging economic outlook in Brazil, according to Carlos Ambrosio, the vice president of the capital markets association, known as Anbima.

“The Brazilian market has evolved a lot in the past few years,” he said by phone from Sao Paulo. “It’s natural that the regulator adjusts the rules.”

The new regulation will be effective starting July 1, 2015.

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