BlackRock, Fidelity Bet Big on Brazil's Booming Equities Market

  • Landers says central bank rate cuts will spark further gains
  • Pruett says consumer stocks are ‘cheap’ and poised to rally

BlackRock Inc. and Fidelity Management & Research Co. are betting Brazil’s world-beating stock surge over the past year has yet to run its course.

William Landers, a money manager at New York-based BlackRock, says he entered the year with a “pretty big overweight” in Brazil. Meanwhile, Fidelity’s Will Pruett, who says he was a “Brazil doubter for most of last year,” now expects more gains to come. 

The bullish wagers by two of the world’s biggest asset managers come as some investors begin to question the Ibovespa 103 percent percent jump in the past year. Earlier this week, Mark Mobius, the executive chairman of Templeton Emerging Markets Group, cautioned that Brazil’s equity market was becoming “expensive.” Yet Landers points to the central bank’s move to begin cutting interest rates more aggressively this year as well inflows into the country’s stock and bond markets as catalysts for further gains.

“It’s hard to see what is going to make this turn, unless you see a serious change in fiscal policy in the developed world, and we’re not looking for that at this point,” he said.

Landers, who oversees $2.2 billion at the world biggest money manager, said Brazil’s financial and oil and mining industries are among the most attractive.

Pruett is also betting that the nation’s banks will get a boost as delinquencies slow.

“We’re past the peak in the credit cycle,” he said. “Those are businesses that don’t need demand to pick up that much and they can grow a lot just by reducing provisions.”

Pruett, who helps manage $544 million of assets at Boston-based Fidelity, also said Brazil’s consumer stocks are cheap.

“Fundamentals look bad now, but a year from now fundamentals will look better and the stocks are going to go up and everyone is going to want to own them,” he said. “It’s clear that we’re through the cycle, which is the big thing.”

Pruett and Landers also agree on the biggest threat to Brazil’s stock market boom: failure to follow through on economic reforms.

A pension overhaul is the next essential part of President Michel Temer’s plans to put Brazil’s battered public finances on a sustainable footing. Though Congress backed a spending cap that passed last year, the legislation triggered widespread public protest.

“If Congress decided that ‘things are great and we don’t have to do anything else’ and only did the job halfway as we’ve seen before, that type of complacency would be the worst that could happen,” Landers said. "If pension reform was passed but it was so watered down, that would be bad.”

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