Hedge fund Gávea steps up contrarian Mexico, Brazil currency bets

viernes 5 de febrero de 2016 08:25 GYT

By Guillermo Parra-Bernal and Lawrence Delevingne

SAO PAULO/NEW YORK Feb 5 (Reuters) - Gávea Investimentos Ltda, the hedge fund run by former Brazilian central bank president Arminio Fraga, is doubling down on contrarian bets on Mexico's currency and against Brazil's, a sign that disparities between Latin America's two biggest economies will grow faster.

Money managers at the Rio de Janeiro-based fund said in an investor letter that a bearish U.S. economic outlook, plunging oil prices and heightened global volatility allowed them to add Mexican pesos and increasingly their wager against the Brazilian real.

"We took advantage of this move by increasing the long position in the Mexican currency versus the short in the real as we see a huge differentiation between the two cases," the letter said. Gávea also kept bets against the currencies of Thailand, South Korea, Singapore, Australia and New Zealand.

The strategy comes as central banks around the world adjust interest rates and take other steps to stimulate growth, triggering massive currency market imbalances. The U.S. dollar is swinging violently as hopes for further currency-supportive hikes in borrowing costs cooled as volatility heightened.

While Mexico's economy is expanding consistently as President Enrique Peña Nieto's reform plan is finally helping lower the price of utility services and wage costs, Brazil is expected to face the longest and most severe economic recession since at least 1901.

As Brazil's benchmark Bovespa stock index plummeted while the real significantly outperformed peer currencies last month, Gávea added to a wager against the currency while lowering the same bearish bet on the Bovespa, the letter said.

In January, the firm's Gávea Fund returned an estimated 0.20 percent, and the higher-risk Gávea Fund Plus generated 0.27 percent, the letter said. Equities were the main source of returns for both funds last month, followed by currencies, the letter added.

Daily value at risk, a widely followed gauge that measures the maximum amount an investor can lose in a trading session, ended last month at 0.53 percent of capital for Gávea Fund and 0.78 percent for Gávea Fund Plus.

A former fund manager for billionaire George Soros, Fraga was central bank president from 1999 to 2003. He then founded Gávea, named for an upscale Rio neighborhood that is also home to a tropical rainforest park. (Editing by Lisa Von Ahn)