Brazil's Foreign Investors See a New President as Last Best Hope

  • Bisat says a `complete paradigm shift' in Brazil very positive
  • Rousseff legacy is how not to manage an economy, Newman says

The political storm descending on Brazil right now is a boon in the eye of foreign investors who see a change in government as the best way to pull the country out of its doldrums.

Stocks and the real led global gains Thursday after President Dilma Rousseff’s naming of Luiz Inacio Lula da Silva, her predecessor and mentor, to a Cabinet post appeared to backfire, spurring speculation her impeachment is more likely. With congress paralyzed by the political battles, the view of some analysts and investors is that new leadership is needed to end the worst recession in a century and reverse a record fiscal deficit.

“There are a lot of other things that need to happen, but I think the markets would be very positive toward that change and I think there’s still some upside” in Brazilian assets, said Gregory Lesko, a money manager at Deltec Asset Management in New York.

The comments below came as the Ibovespa stock gauge jumped the most since May 2009, while the currency traded near a six-month high. The cost to insure the country’s debt against non-payment in the credit-default swaps market tumbled the most since Dec. 19.

*Amer Bisat, an emerging-market money manager at BlackRock Inc., the world’s largest asset manager with $4.6 trillion. He says the firm has “started engaging” in Brazil.

“A new change, a complete paradigm shift, will be very positive for an economy that has been in severe recession. The reversal of the imbalances as a result of political stability will be very positive for the story. And Brazil is very cheap. Brazil has enormous amounts of value.

“It’s very difficult for us to come up with a political view, but we are waiting. When the political scenario plays out, we want to look at how the economy reacts to it.”

*Sean Newman, a money manager in Atlanta at Invesco Advisers Inc., who recommends buying Brazilian assets. His firm oversees $776 billion of assets.

The current government’s “legacy is certainly going to be a reflection of how not to manage an economy. It will be a case study in business schools for years to come."

*Bianca Taylor, a sovereign analyst and strategist at Loomis Sayles & Co. in Boston, who helps manage $229.1 billion in assets, including Brazilian government notes.

“The whole impeachment process could expedite. It became clear that Rousseff and him are not thinking about the country anymore, but just about themselves. And this is a very dangerous logic. They don’t seem to be worried about the economic scenario at all, but just their personal survival.

"This government won’t be there by the end of the year. A dramatic change could happen in the upcoming days.”

*Koon Chow, a strategist at Union Bancaire Privee in London.

Chances of a new government “have increased significantly in the past month,” Chow said. “Popular support for the impeachment of President Dilma is increasing.”

If there is an impeachment, investors “would buy Brazilian assets, they would buy equities and they would buy bonds.”

“Congress and Senate are incredibly uncooperative because they think that Dilma has no mandate anymore and also they disagree with what’s she has been recommending.”

*Gregory Lesko, a money manager at Deltec Asset Management LLC in New York.

“There’s a complicated process for impeachment in Brazil, Lesko said. “Clearly change is happening and that can only be considered, at least for now, good news because
the country’s been run in a way that’s been fairly negative for investment.

“Brazilian rates are very high, inflation has started to come off a little bit. I think if you get some fiscal discipline, money is going to come into the country, rates could go down, and you might even have a situation with the currency where it could even overshoot to the strongside because there’s no yield anywhere else in the world. If people are comfortable that the debt-to-GDP dynamics are going to stabilize, I think you could have a significant amount of money coming into the country, which will strengthen the currency, which will lower inflation. So it’s a very positive feedback loop. That’s why the market is getting excited about change.”

*Tim Ghriskey, who helps oversee $1.5 billion as managing director and chief investment officer at Solaris Asset Management in New York.

“Throughout history there are uprisings -- the French Revolution, the American Revolution, in Egypt -- and this should be a revolution in Brazil to change how government and corporations behave. People are demanding change. It’s certainly benefiting the markets today, and we’d expect that to continue if that change is realized.”

*Juan Carlos Rodado, director of Latin America research at bank Natixis North America in New York.

"Brazil now is very hard to predict. What I tell my clients is that I’m not a political analyst, and unfortunately you need one now to invest in Brazil.

"Politics is a game changer,” he said. “With a bit of common sense you can fix Brazil, but it would be painful for the population. The problem is that we have no idea of who is going to clean the house. There is no strong leader in the opposition.”

*Regis Chatellier, the director for emerging markets credit strategy at Societe Generale in London, who says he’s “largely overweight” on Brazil.

"The political uncertainties are generating a lot of volatility in the market. However, the bad news have been priced in for some time, and investors are starting to envisage a more friendly outcome."

"Dilma Rousseff’s room to maneuver is extremely narrow, and given the severity of the recession, the extent of the Petrobras corruption scandal and the resulting protests, she may not have any other choice but to step down, eventually. Her position is going to see increasingly unsustainable. That’s what the market is starting to price: a change in government which could be a game changer in terms of economic policy."

"From that perspective, Brazilian bonds are still offering value. A change in government would certainly support Brazilian assets, at least initially. After that, it depends on other factors.”

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