By Erin McCarthy and Paulo Trevisani
Investors shouldn't expect any major shifts in Brazil's economic
policy this year, as the markets look for more clarity from policy
makers, said Will Landers, Latin America fund manager at the
world's largest money manager, BlackRock.
Brazilian authorities have been on a tightrope walk between
containing inflationary pressures while not letting currency
strength hamper exporters' competitiveness. That has led the
central bank to keep the currency trading in a range of around
BRl1.95-BRL2.05 per dollar.
For now, Brazil has enough firepower to keep this balancing act
going, even though a stronger real would be closer to fair value,
said Landers, whose team manages about $6.5 billion in Latin
American equities.
"They have enough liquidity in their hands...that in the short
term they can manage the currency," he said in an interview with
Dow Jones.
That means there's no reason the real would move closer to fair
value for now, which Mr. Landers sees as around BRL1.80-BRL1.85 per
dollar. Instead, he expects it to trade in the middle of the
BRL1.90-BRL2 range as Brazilian policymakers aren't keen on the
currency appreciating much farther from here. On Friday, the dollar
traded at BRL1.9733, according to CQG.
While the strengthening of the real to current levels from above
BRL2 per dollar in January is positive for foreign investors, it's
still far better for "market forces" to determine the exchange
rate, he adds.
Mr. Landers expects Brazilians to keep on buying more goods and
services, and reducing their debt load, a trend that he expects
will benefit stocks of consumption-related companies.
Unemployment in Brazil is at historic lows, meaning that more
families are likely to see their buying power growing. Education,
retail and food companies are likely to gain from it, said Mr.
Landers. "The consumer will still be there."
BRF-Brasil Foods SA (BRFS3.BR, BRFS), a poultry producer, is
also among the top-10 holdings of Mr. Landers's fund.
Although BlackRock won't disclose its holdings beyond the top-10
of each fund, Mr. Landers said a relatively new wave of
private-school companies are also promising.
"Education is a great sector," he said, citing a
college-education credit program held by state-owned bank Caixa
Economica Federal which offers low-rate loans for low-income
students. "It is a very attractive financing mechanism," he
said.
Publicly traded colleges in Brazil "offer good value for decent
education," he said.
Mr. Landers also likes Brazilian banks. "They are not the
cheapest in the world, but they are still attractive," he said.
Banco Bradesco (BBD, BBDO) and Itau Unibanco Holding (ITUB3.BR,
ITUB) are both on his top-10 list.
Another Brazilian non-consumer stock on the list is toll-road
firm Grupo CCR.
Mr. Landers is still optimistic with Brazil's iron powerhouse
Vale SA (VALE, VALE3.BR), thanks to high iron prices--which
increased 17.63% in 12 months as of last January, according to
Index Mundi. Vale is at the top of BlackRock's Latin America Fund,
with 8.7% of its net assets held by the fund.
His prospects are less bright for Petroleo Brasileiro SA (PBR,
PETR3.BR) the state-controlled oil giant that has been showing
disappointing results lately. Although still the fourth-largest
holding in his fund, Petrobras still keeps its prices around 15% to
20% below the world average, Mr. Landers said, while having to pay
the same price for crude as everybody else.
His equity fund ended 2012 with a drop of around 15% in total
assets, but Landers believes the fund could grow this year as
Brazil is expected to deliver stronger growth than last year's
estimated 1% or less in gross domestic product growth.
A new push for infrastructure expansion in Brazil could also
help, Mr. Landers said, if more Brazilian companies in the sector
listed stocks. Brazil's largest infrastructure groups are closely
held, and while Mr. Landers believes they will continue to be, "it
would be helpful if they listed some of their subsidiaries."