RIO DE JANEIRO, BRAZIL – The approach of a two-way scenario for the Brazilian elections with a dispute focused on two candidates – current and former presidents Jair Bolsonaro and Luiz Inácio Lula da Silva (PT) – should prompt a sharp asset sell-off by foreign investors until the 2022 elections.
The statement came from Kim Catechis, head of emerging markets at Franklin Templeton who on Tuesday took part in a live broadcast hosted by Ohmresearch alongside Jean Van de Walle, chief investment officer (CIO) at Sycamore Capital and assistant professor of finance for emerging markets at New York’s Stern Business School.
Catechis says that, as a “friend of Brazil”, he is “disappointed” with the candidates that proved more attractive to Brazilians and that he would be “surprised” if this strong sell-off didn’t happen. In his assessment, it is very difficult for foreign investors to understand what the next government will be like and if ex-president Lula, ahead in the electoral polls, would adopt the same stance as in previous terms.
The election scenario is in fact what supports Catechis’ notion that Brazil should be considered a very short-term tactical position, rather than a medium- and long-term strategic one, given the greater number of risks on the radar, such as the coming elections and the need for ever-increasing investments in technology, which relies on greater external stimulus.
The opinion is shared by Jean Van de Walle, for whom global fund managers have stopped paying much attention to the country due to high uncertainty, the incapacity for reforms, and low growth prospects due to a lack of technological innovation.
Uncontrolled spending is also highlighted as a negative point by Sycamore Capital’s manager, in addition to the lack of investments in infrastructure. “The country is accumulating debts and there are no investments. That to me is quite problematic.”
Walle is also not very optimistic about the political scenario unfolding for 2022, which only reinforces that the country should not be thought of as a “buy and hold” market, that is, with a long-term focus.
“I think Brazil is a case for positioning with a quick focus of about six months. I see it more as an interesting case [with the possibility of profiting] with the reopening of the economy,” the manager pointed out, without mentioning the names of companies that could benefit from the economic recovery.
Bets on China
For both, China is still the great success case. Walle points out that the country should be seen separately from the remaining emerging economies. According to him, the Asian giant should continue to post interesting growth, although lower than in the past, and some companies are cheap and with attractive valuation in the stock market compared to American stocks, such as Alibaba.
Catechis also has big bets on China and says he is looking closely at the country’s population growth. He says that there is a significant number of new consumers, which may reach 1 billion people, and that it is very difficult for other nations to compete with a country with such a large consumer market.