BNY's Newton Shuns Brazil Assets as Rally Seen Unsustainable

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  • `Little value' seen in equities, currency under pressure
  • Political change won't solve economic issues: Rob Marshall-Lee

The rally that sent the Ibovespa to the best performance in the world this year is unsustainable as Latin America’s largest economy will languish even if there’s a change in government, according to Bank of New York Mellon Corp.’s Newton Investment Management.

“There is the potential for political change, but the problem for Brazil is that really doesn’t solve the underlying issues,” Rob Marshall-Lee, the head of emerging-markets equities investment at Newton, said in a podcast on the firm’s website. “We don’t believe the market rally in Brazil broadly is sustainable. We are happy to keep with the zero weighting there.”

Brazil’s benchmark index entered a bull market in March, the real was the world’s best performing currency in the first quarter and the country’s bonds are outperforming emerging-market peers on speculation that President Dilma Rousseff will be ousted amid a widening graft scandal. An impeachment is seen by traders as a way to halt the political quagmire that has prevented Congress from approving measures to pull the economy out of its worst recession in a century.

The advance left stocks with “little value,” and the currency should be under pressure, said Marshall-Lee. Newton oversees $66 billion in assets globally.

After Brazil’s gross domestic product contracted 3.8 percent in 2015, the economy will shrink another 3.6 percent this year, according the median estimate of analysts surveyed by Bloomberg. The Ibovespa added 0.9 percent Thursday, and the real weakened 1.3 percent.