Brazil’s stock exchange, the Bovespa, is regarded by some as a preferred option for investment as the country’s economy is performing well and is commodity backed.
Global senior investment figures are increasingly buying into stocks, as they believe that Brazil’s booming economy will continue to boost the Bovespa.
Fund firm Armstrong Investment Managers has upped its exposure to Latin America’s largest economy by raising his holding in a stock market exchange traded fund to 5.8% of his Diversified Dynamic Solution fund, while food processor Brasil Foods has been upped to 3%.
Managing partner Patrick Armstrong cites the cheap valuation and attractive dividend yield of Brazil’s Bovespa, currently on a forecast price/earnings ratio of 11.8 times with a 2.8% yield in the light of strong drivers of growth.
‘It’s our preferred BRIC (Brazil, Russia, India and China) by far. It’s got a lot of things working for it. It’s got strong economic growth. The demographics are in favour, there’s been no banking crisis, the current account is balanced and it’s a commodity backed economy,’ he explained.
The Bovespa, one of the world’s best performing stock markets since the credit crisis, has more than doubled since its November 2008 low, boosted by a shallower recession than many developed economies and expectations of strong growth this year.
However, not all hedge funds are convinced. Pedro de Noronha, managing partner of Noster Capital, revealed that he had begun shorting a Brazil stock market exchange traded fund, saying the market had become a very popular trade, but would be badly hit if China’s economy stumbles.
And managers at global macro hedge fund firm Onslow Capital said they were short Brazilian bonds because they believe prices more than reflect the strength of the country’s economy.
As economic reports in China and the US though boost the outlook for commodities, the Bovespa is becoming increasingly attractive to investors. Popular buys include Vale, the world’s largest iron ore producer, and Petroleo Brasileiro, Brazil’s state controlled oil company.
Gloomy economic news from the US is regarded, however, as a threat. Just this week disappointing data on the US housing sector renewed concern on the possibility of a double-dip recession in the US, causing stocks to fall.
