December 3, 2019 / 3:43 PM / 2 days ago

Q&A-DWS likes Brazil stocks, backs Chile to ride out unrest

Dec 3 (Reuters) - Latin America is poised for growth after years of under performance, Luiz Ribeiro, manager of the Latin America Equities fund at asset manager DWS Group, said on Tuesday, forecasting regional growth would rebound in 2020 to near 2%.

Ribeiro, who oversees $310 million in assets, told the Reuters Global Markets Forum that Chile was still an attractive investment and that its government had comfortable room to respond to recent unrest by spending more.

He also argued that market fears about Argentina’s incoming leftist government were overdone.

He said Brazil was his top investment pick, however, due to factors including hopes that tax reform would kick in and spur gains among domestic focused equities.

(The following are excerpts from a Reuters Global Markets Forum chat. To join the forum, click here tmsnrt.rs/2jTnFk8)

Q - What’s your broad view towards Latam stocks currently?

A - Our broad view is positive after a strong underperformance of the region basically since 2012. For the first time in many years, GDP growth next year will accelerate back to close to 2% (consensus is around 1.7% today) from 0.7% this year.

Q - How much has the recent political uncertainty in Chile impacted your outlook towards the country’s stocks?

A - Chile’s fiscal deficit is well below the average for the region, and debt-to-GDP is only 27%. We think that GDP growth will go down from around 2.2% this year to around 1.5% next year.

It is bad but not a disaster, we would buy Chile now but it’s a small market with only around 7% of the MSCI (Latam stocks benchmark).

Q - DWS believes Argentina’s GDP will contract less in 2020 than in 2019, and could grow again in 2021. Considering this, what are your views on stocks on its MerVal index?

A - Argentina’s fiscal situation is better than in the past, thanks to President Mauricio Macri’s reforms, and the currency is undervalued. We believe President-elect Alberto Fernández will be more balanced than feared.

Q - Considering domestic factors, what are your thoughts on Brazilian President Jair Bolsonaro’s economic reform agenda?

A - The social security reform was a major step and better than we expected, and the privatization plan is also moving according to expectations. If the administrative reform and tax reform move smoothly, we would increase exposure to domestic names and to Brazil itself.

Q - Considering rate cuts expected from Banxico, do you think Mexican banks are to be avoided in the near future?

A - I do think rates will move down but there is not much room. A cut from 7.50% to 6.50% by the end of next year is feasible but not much more than that given the sticky inflation.

Banks should continue to do ok in terms of net interest margins, but growth is more of a challenge. We worry about loan growth and non-performing loans in this point of the cycle.

Q - Brazilian miner Vale SA is among your top holdings - as per the latest available filings - could you run us through your rationale for the investment?

A - Vale is a big holding but we are close to Neutral compared to the benchmark, we added recently since we believe in a cyclical rebound somewhere next year and a likely weaker dollar should also favor iron ore prices. (That said) we feel more comfortable with domestic linked stories.

Reporting by Aaron Saldanha and Lisa Mattackal in Bengaluru; editing by Patrick Graham

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