Skagen Bets on Petrobras as Producer Seen Emerging Stronger

Skagen AS, whose emerging market fund has beaten the benchmark eight of the past 10 years, is snapping up shares in Petroleo Brasileiro SA in a bet the state-owned oil producer will emerge stronger after a corruption probe.

Kristoffer Stensrud, a founder of the Norwegian company who manages the 51 billion-krone ($6.4 billion) Kon-Tiki A emerging market fund, says investments in Brazil as a whole are also now cheap as the currency has tumbled.

“Petrobras has become very unpopular and we have bought a listening post,” Stensrud said in an interview in Stavanger, Norway, last week. “You should buy oil stocks after the oil price has fallen and not before.”

Brazil is struggling with its economic expansion, above-target inflation and budget deficits as oil prices have plunged. The Ibovespa stock index fell 24 percent from September to a low in January. Petrobras has dropped more than 60 percent since September.

Petrobras rose 1.5 percent to 9.54 real as 10:41 a.m. local time, after gaining as much as 2 percent earlier.

After buying shares in both January and February, the Kon-Tiki fund now has 1 percent of its capital invested in Petrobras. The company’s cash flow will improve in the short term when oil prices are lower because retail product prices are fixed in Brazil, according to Stensrud. The corruption scandal will also lead toward better governance, he said.

Low Currency

The oil producer is at the center of Brazil’s biggest graft and money laundering scandal, allegedly involving contractors, executives and politicians.

The fund in February also started to invest in the retail company Cia Brasileira de Distribuicao and has increased its stake in Vale SA this year.

“Corporate valuations are low and the currency is low, which is a competitive advantage for those who compete against imports,” he said. “And better policy making may result in a revaluation of the companies.”

While the fund holds stakes in Indian companies such as State Bank of India and Mahindra & Mahindra Ltd., Stensrud said the Indian market had run its course. The Sensex index rose 30 percent in 2014. The index closed at 27,976 points, down 7 percent from this year’s high on March 4.

“Companies valuations are high and there starts to be a lot of expectations” he said. “We have sold a little bit the past six months.”

Kon-Tiki, mandated to hold 50 percent in emerging markets, also invests in developed markets. The fund exited Heineken NV in February and holds ABB Ltd. and AP Moeller-Maersk A/S.

“Maersk was undervalued, now it’s close to balanced,” he said. “It is one of those we are reducing.”

Maersk was up 2.4 percent in Copenhagen at 3:40 p.m.

Stensrud uses broad themes such as global growth and a growing middle class of consumers in emerging markets to find undervalued stocks.

“The long story is intact,” he said. “This is an enormous shift to middle class and it’s happening now.”

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