Gávea Investimentos, J.P. Morgan's Rio de Janeiro-based hedge fund unit and one of the largest in Latin America, is bullish on beaten-down Brazilian stocks rebounding in 2014.
"We see potential for a surprise on the upside in earnings in 2014," Thomas Souza, Gávea's equity chief, wrote in a letter to investors obtained by CNBC.com. "We continue to pursue a strategy that invests in stocks which we believe have robust fundamentals and that are resistant to the challenging economic environment."
Souza estimates that earnings growth could reach 20 percent over 2014.
Gávea, also an affiliate of U.S. hedge fund firm Highbridge Capital Management, manages $7.21 billion overall across hedge, private equity, stock and real estate funds as of November. Hedge fund assets total $3.62 billion.
The firm's optimistic outlook comes amid a year of losses.The Brazil and Latin America-focused Gávea Equity Fund is down 8.85 percent through November, according to investor materials. That's better, however, than the MSCI Emerging Markets Latin American Index's loss of 13.3 percent through November and the Bovespa's—Brazil's stock exchange—19.16 percent fall this year.
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Gávea's equity fund has lost money recently on long positions in oil and gas, financials and industrials, according to investor materials. Winners in November include long positions in education and short bets in materials.
Souza acknowledges how bearish most analysts and investors are about the Brazilian economy but said that such pessimism has largely been priced in.
"We believe that after nearly three years of margin contraction and consistent earnings downgrades, we may well be at an inflection point," Souza wrote. "And this could be positive for equity markets overall despite the negative macro environment."
Gávea is also bullish on China and the United States.
"We believe that many of China's difficulties are already priced in, especially in the equity market, creating an asymmetry that we are now attempting to exploit," firm executives Edward Amadeo, Arminio Fraga and Gabriel Srour wrote in a separate letter to investors in Gávea's macro fund.
The firm also correctly anticipated the U.S. Federal Reserve's reduction of its monetary stimulus program Wednesday.
"We believe that the fiscal burden on growth in 2014 should be smaller than that of 2013," they wrote, "and that the variance of scenarios envisioned by the market for the country's GDP growth in 2014 has decreased, converging to 2.5 percent to 3.0 percent."
As a result, Gávea has long positions in Chinese stocks via Hong Kong and Shanghai equity indexes and a long stake in the U.S. dollar against currencies in developed economies such as in Canada, Japan and Europe, according to the letter.
The $1.52 billion Gávea Fund, which bets globally on stocks, currencies, interest rates and other asset classes, is up 1.92 percent this year through November. The Absolute Return Macro Index—which tracks hedge funds that run a similar strategy—is up just 1.0 percent over the same period.
Gávea chief executive officer Amaury Bier declined to comment.
—By CNBC's Lawrence Delevingne. Follow him on Twitter