UPDATE 1-Verde hedge fund expects repricing of Brazil assets, especially currency

martes 10 de febrero de 2015 13:10 GYT
 

(Adds assets under management, currency performance in paragraphs 1-4)

SAO PAULO Feb 10 (Reuters) - Verde Asset Management, Brazil's largest hedge fund with 30 billion reais ($10 billion) under management, expects investors to become more skeptical about Brazilian financial assets, whose prices are failing to reflect an ongoing deterioration of the nation's economy.

In the first monthly letter to investors since spinning off from Credit Suisse Group AG, money managers led by Luis Stuhlberger said they are positioned for a "de-rating of Brazilian assets," especially the currency, which they defined as the one "with the most erroneous pricing."

An expected decline in the real should be able to help narrow an estimated $34 billion shortfall in Brazil's balance of payments this year, the letter said. The currency touched a 10-year low on Tuesday, shedding 2.3 percent to 2.831 reais to the dollar.

"Only a few times in my long professional career have I seen such a perfect alignment of negative circumstances that could trigger a currency depreciation," said Stuhlberger, whose Verde FIC FIM fund has posted total returns over 9,500 percent since its inception in 1997.

According to Stuhlberger, the real has remained relatively stable in a range between 2.70 reais and 2.80 reais in recent weeks because of the swelling carry - or the difference between Brazilian and global interest rates that now is the biggest among investment-grade countries.

Verde's defensive approach comes after domestic markets underperformed for the past three years as erratic economic policy decisions weighed on confidence in state-owned firms. Last year, Brazil's current account gap was the highest in seven decades while the government posted the widest annual budget deficit since 2002.

Brazil's ongoing stagnation could extend for another year and inflation may end well above the ceiling of the central bank's official target, 6.5 percent.

The currency is becoming too dependent on Finance Minister Joaquim Levy's success to curb spending and on President Dilma Rousseff's willingness to institute tougher adjustments, the letter suggested. The currency is down 15 percent over the past 12 months.

In the letter, Stuhlberger explained that the resistance of Brazil's benchmark Bovespa stock index to fall below 49,000 underscores the growing relevance of financial stocks and beverage giant Cia de Bebidas das Americas SA, or Ambev, which are oligopolistic in nature and resilient in economic downturns.

Verde is using options to bet on a decline in the Bovespa, the letter added. (Reporting by Guillermo Parra-Bernal; Editing by Nick Zieminski)