SAO PAULO, June 9 (Reuters) - Foreign investors' optimism about Brazil remains unfounded even as it lessened somewhat in May, Verde Asset Management said in a monthly letter to clients distributed on Tuesday.
Verde, Brazil's largest hedge fund with over 30 billion reais ($9.7 billion) under management, cautioned that Brazil's fiscal outlook remains tough while its economy seems unlikely to rebound any time soon amid a challenging global backdrop.
Foreign investors snapped up nearly 1.5 billion reais in Brazilian stocks in May, five times less than the 7.6 billion reais they poured in April, data from bourse operator BM&FBovespa SA showed recently.
"Foreign investors' exaggerated optimism ... still seems to be disconnected from the medium-term reality" in Brazil, money managers led by Luis Stuhlberger said in the letter.
Sao Paulo-based Verde recorded a consolidated return of 3.87 percent in May, following a 1.7 percent loss in the previous month, as bets on a decline in the Brazilian real against the U.S. dollar paid off.
"The dollar recovered against all currencies as it became clear that the strength of the U.S. economy was not structurally hurt by the heavy winter or the collapse of investments in oil exploration," Verde said.
Stuhlberger and his team estimate the U.S. Federal Reserve may start raising interest rates around September, further strengthening the dollar.
Verde's performance was also bolstered by an increase in long-term European interest rates. The fund said rates rose due to a long-due correction process that is likely to continue over the next few months, and not due to an improvement in economic conditions of the euro zone.
$1 = 3.0990 Brazilian reais Reporting by Walter Brandimarte; Editing by Guillermo Parra-Bernal, Bernard Orr