On Wednesday Brazil’s Congress took another step towards impeaching Rousseff, publishing a report that recommended lawmakers vote in favour of a trial before the Senate. Rousseff, who is accused of using loans from state banks to fill the country’s budget gap, denies all allegations.
Sarasin & Partners’ head of third-party funds Lucy Walker recently told Portfolio Adviser that the wealth manager is increasing its exposure to the country. She said that Brazil’s attempts at clearing government corruption have yielded some strong developments recently.
Coronation Global Emerging Markets, the fund Sarasin uses for emerging markets, has a “reasonable allocation there”, she said. “But the policy team would also be happy to invest on a standalone basis in Brazil, if fundamentals continue to improve,” added Walker.
However according to Ed Smith, asset allocation strategist at Rathbones, the ongoing political mess around the Dilma story is a big reason to stay out of Brazil. If it continues to play out, that will be bad news for Brazil as companies do not want to it to go through the courts.
So it seems like the untangling of corruption in Brazil’s domestic politics play to opposing ends of the sentiment barometer in different investors’ minds.
Brazil is currently in recession and for emerging market economies to perform better, a better backdrop of global growth needs to materialise, according to Anthony Rayner, fund manager at Miton.
“Largely as a result of populism, the economies of Argentina and Brazil have fared much worse than the economies of Mexico and Chile, that have managed the commodities cycle more sensibly,” he said.
That said and despite the political issues, Miton is not avoiding the region entirely. “Having been pretty defensive into the start of the year, which served us well, we have been keen recently to add some risk back into our funds, reflecting an improved environment for risk-assets in line with our pragmatic approach,” said Rayner. “Previously, we’d had no exposure to emerging markets in either Asia or Latin America for some time.”
Miton added a basket of large cap liquid stocks across its funds in March, split evenly between those two regions – a decision driven by “portfolio construction and some positive price action in the underlying asset class, rather than by a strong conviction in emerging markets per se”, noted Rayner.
