Buy dollars, sell stocks: Legacy’s bets against the new Brazilian government
By Vinícius Andrade
Legacy Capital recently set up a small long position (bet on the rise) in the dollar against the real amid expectations of a deteriorating fiscal situation under the elected government of Luiz Inácio Lula da Silva (PT, progressive-globalist).
“The current exchange rate does not reflect the fiscal worsening that will be contracted”, said Gustavo Pessoa, founding partner of Legacy, which has more than R$20 (US$3.8) billion under management.
According to Pessoa, the position “depends more on the dynamics than on the level” of the currency. “As long as there is a worsening in the fiscal and parafiscal dynamics, we should continue with negative bets.”
The fund maintains a short position (bet on a fall) in the domestic stock market, “concentrated on names linked to the local economy, and with higher debt indicators”, said the manager, in her most recent letter to shareholders.
The “short” (bet on the fall) on the stock exchange is the fund’s main position in Brazil.
Indications from the elected government are that the next finance minister will have a political profile and will be aligned with policies to increase spending, taxes, targeted credit expansion, and increased state intervention, according to Legacy.
“The negotiation of the values extracted in the ‘Transition PEC‘ is just the first element of an economic policy agenda that should include, in addition to fiscal expansion, the return to the use of public banks to boost credit, and a new fiscal framework,” said the manager.
“In this context, it is likely that inflation expectations for the coming years will enter an upward trajectory.”
The manager sees elements that indicate that the growth of the Brazilian economy should slow down to close to zero in 2023. The house’s projections also point to inflation of 5.7% in 2023 and 5.2% in 2024.
According to data compiled by Bloomberg News, the Legacy Capital FIC fund retreated 0.26% in November, against a 1.02% gain in the CDI.
The fund has a smaller short position on the international exchange and is long on oil.
With information from Bloomberg Línea
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+0.66%
172,457.76
+0.66%
71,204.98
-0.84%
10,660.26
+0.33%
2,848,945
—
2,452.46
-0.02%
| Instrument | Last | Change | YoY | Prev. | High | Low | Volume |
|---|---|---|---|---|---|---|---|
| IBOV | 172,457.76 | +0.66% | +9.73% | 171,324.31 | 172,715 | 171,132 | — |
| USD/BRL | 5.67 | +0.45% | +7.09% | 5.64 | 5.67 | 5.63 | — |
| SELIC | 13.75% | — | — | — | — | — | |
| PETR4 | 45.30 | +1.34% | +39.43% | 44.70 | 45.44 | 44.62 | 23,431,200 |
| VALE3 | 63.50 | -0.70% | -3.30% | 63.95 | 64.24 | 63.12 | 11,175,700 |
| ITUB4 | 42.27 | +1.42% | +7.66% | 41.68 | 42.56 | 41.62 | 19,532,400 |
| BBDC4 | 14.52 | +1.40% | -25.46% | 14.32 | 14.54 | 14.27 | 32,353,600 |
| BBAS3 | 15.10 | -2.45% | -32.89% | 15.48 | 15.60 | 14.98 | 85,573,900 |
| B3SA3 | 14.89 | +0.88% | +2.90% | 14.76 | 14.94 | 14.53 | 34,792,900 |
| ABEV3 | 15.79 | +0.25% | +15.85% | 15.75 | 15.83 | 15.64 | 13,254,800 |
| WEGE3 | 51.31 | -0.66% | +14.48% | 51.65 | 52.05 | 50.93 | 7,741,000 |
| PRIO3 | 63.30 | +0.00% | +58.93% | 63.30 | 63.83 | 62.65 | 10,460,300 |
| SUZB3 | 54.77 | -2.27% | +14.92% | 56.04 | 55.98 | 54.66 | 3,845,300 |
| RENT3 | 30.07 | +1.66% | -28.47% | 29.58 | 30.35 | 29.58 | 7,599,300 |
| AZZA3 | 15.91 | -5.86% | -45.85% | 16.90 | 17.10 | 15.72 | 6,641,600 |
| CSNA3 | 3.72 | -12.06% | -56.79% | 4.23 | 4.14 | 3.71 | 54,060,600 |
| GGBR4 | 24.73 | -0.96% | +30.78% | 24.97 | 25.09 | 24.53 | 5,458,200 |
| ENEV3 | 26.81 | -0.70% | +38.98% | 27.00 | 27.09 | 26.64 | 5,990,500 |
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