Brazil is expected to be a major investment destination for global investors over the next decade according to Ashmore Investment Management, the leading specialist emerging markets asset manager. A largely closed economy with strong domestic demand, Brazil has weathered the credit crunch, is a net creditor country lending money to the IMF and should see benefits from global rebalancing.
Commenting on Brazil’s investment culture Eduardo Camara Lopes, chief executive officer of Ashmore Brasil, said: “Over the next ten years, and as domestic investors become more accustomed to lower interest rates than a decade ago, we will see more allocation outside money markets. A growing number of companies are looking for financing via the stock exchange. Credit availability is also growing and this has had a strong impact on the economy as a whole”.
An established local team based in São Paulo has enabled Ashmore Brasil to pursue the domestic opportunities in the region, where returns have been strong across both equities and debt. The Ashmore Brasil Equity Fund is up 137.42% versus 104.74% for the index.
Eduardo added: “Our equity approach combines top down and bottom up analysis, is long only, and has at least 80% highly liquid stocks. This compares to a number of more complicated hedge fund type strategies. The benefit of this approach is that it enables strong performance without the same liquidity and other downside risks of some competitor funds.
Jerome Booth, head of research at Ashmore, believes that Brazil remains attractive for international investors as the region should benefit from the impending global economic and political rebalancing.
He said: “After many years of constitutional and structural reforms, inflation has been decisively beaten and political risk has reduced. Whilst there is still a political cycle, as in most countries, there is a broad consensus on economic policy. Basic and sustainable fiscal prudence and macro-economic stability have been established.”
“As this new reality of global risks changes, so asset allocators are starting to realise they are massively under-weight Brazil and other emerging markets. Moreover, global investors who previously thought the US and Europe as safe-havens are having to reassess their own asset allocations, whilst institutional investors in Brazil are going to have to invest more in managed funds as the country moves to a permanently lower inflation growth path.”
