Brazil's Real Needs 10% Drop to Become Attractive, Invesco Says

  • Firm is underweight on Brazil; `very constructive' on Mexico
  • Invesco says Ecuador still has elevated default risk

Brazil’s real, the world’s worst-performing currency last year, needs to drop another 8 percent to 10 percent to become attractive, according to Invesco Advisers Inc.

“Brazil is going to get cheaper,” Sean Newman, a senior money manager who helps oversee $1.1 billion in emerging-market debt at Invesco in Atlanta, said in an interview. “Economic conditions are deteriorating this year. On top of that, we are seeing a weaker global growth environment. It’s too early to get back in the game there.”

The currency tumbled 33 percent in 2015 as President Dilma Rousseff struggled to shore up the nation’s finances, Brazil was downgraded to junk and a corruption scandal widened. To make matters worse, Latin America’s largest economy is heading toward the deepest recession in a century at a time when China, its top trading partner, shows signs of a slowdown. The real closed at 3.9039 per dollar on Feb. 5, before the Brazilian market closed for a holiday.

While Invesco is underweight on Brazil relative to the benchmark, it says the nation’s 10-year global bonds are approaching a level that would present a good investment opportunity.

The firm, which managed $775.6 billion in assets at the end of 2015, has a “very constructive” view on Mexico because of its economic prospects and the boost its exports will receive amid a slide in the peso.

While the firm bets that the Caribbean, Jamaica, Honduras and the Dominican Republic should benefit from a drop in the cost of their oil imports, lower crude revenue hurts countries such as Ecuador, which has an elevated risk of default. Meanwhile, the slide in copper prices creates a challenging environment for the Chilean peso and local assets, according to Invesco.

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