A Triple Threat Tests Brazil's Top Investors
Brazilian money managers face a perfect storm of
slow growth, high rates and political turmoil. Firms like BTG Pactual Asset Management and Credit Suisse Hedging–Griffo Asset Management aim to not only weather it — but thrive, as well.
By Jason Mitchell
As speculation about the Federal Reserves quantitative easing exit strategy mounts, investors around the world are pondering what to do when the era of easy money ends. Brazilian managers have already had a taste, and they know its no picnic.
Brazils markets produced some of the worlds best returns during the past decade, but they have been hit by a triple whammy in recent months. Continued sluggishness in the economy, which grew by just 1.9 percent from a year earlier in the first quarter, has depressed the once-high-flying stock market. Interest rates have been climbing since Banco Central do Brasil responded to rising inflation by hiking its key policy rate by a total of 75 basis points in April and May to 8 percent. And as if markets needed more bad news, demonstrations against bus fare hikes in Rio de Janeiro and São Paulo have spiraled into a nationwide protest movement against corruption and heavy spending on the 2014 World Cup and 2016 Summer Olympics, raising questions about the countrys political stability.
The Brazilian government is in a very tough spot, dealing with two large sources of pressure that could ultimately demand very different styles of reaction, says Marcelo Salomon, co-head of Latin America economics and strategy at Barclays in New York. On one side there is social unrest demanding better use of public money. On the other, Brazilian financial asset prices are in a tailspin that we believe has been amplified by the social unrest, though it has its roots in the lack of fiscal control that has put Brazil on the route to sovereign credit downgrades. ....