Weak Brazilian Real, Equities May Offer Opportunity
By: Despite continued uncertainty over Europe's debt crisis and fears of a global recession , Brazil's depressed currency and equity prices may present buying opportunities.
"Things can get cheaper," says Tim Seymour, founder of Triogem Asset Management, a hedge fund specializing in global and emerging markets. "You haven’t had an opportunity to buy the market this cheap — both equity and the combined currency effect — since 2005."
Early Friday the Brazilian Bovespa rose for the first day in five on speculation the G-20 group of world finance ministers and central bank governors would aid the global economy; then it slid nearly 1 percent in early afternoon trading.
The Brazilian real also pared losses from its worst weekly plunge since November 2008 after Brazil's central bank sold currency swaps in an effort to curb currency volatility Thursday.
Those early gains in Brazilian shares Friday were aided by bargain hunting, pointed out Francisco Drohojowski, who covers emerging markets with a focus on Latin America at Weiss Multi-Strategy Fund.
"People are jumping in today just because it's been so depressed," he said.
Drohojowski is bullish on homebuilders such as PDG Realty, citing the Brazilian government's commitment to lower interest rates. He also likes retail picks including Tecnisa.
"The Brazilian consumer is alive and kicking very well and there’s a lot of people that think the Brazilian consumer is not overextended," he said.
Seymour, who is also the founder of Emergingmoney.com, said investors who are firm believers in Brazil should buy ETF iShares MSCI Brazil Indexand banks including Itau and Bradesco .
Despite the earlier rally, Drohojowski pointed out that Brazil and other emerging markets would continue to suffer.
"Unless you have some clarity on the European situation, markets are going to continue to be nervous," he said.
Seymour echoed similar concern:
"You could start buying Brazilian equities if you think they’re not terrible. The risk here is that I don’t think the U.S. market is anywhere settled out, and there’s a lot of crossover in emerging markets," he said.