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Brazil, it seems, can’t do anything right. The government’s walkover victory in a crucial vote to restrain the national minimum wage on Wednesday night was one more demonstration of a commitment to fiscal austerity that investors just can’t bring themselves to trust. Figures out on Thursday from EPFR Global, which monitors fund flows, showed a rising preference for Brazilian bonds over equities as investors worry that slower growth will hurt corporate earnings.
But one of the biggest investors in Latin American equities disagrees. Will Landers, managing director for Latin America at BlackRock, which has $10.2bn under management in the region, is overweight Brazil and has been building positions as others pull out.
“The government is showing strong resolve and everything is moving in the right direction,” Landers told beyondbrics on Thursday. “But Brazilians are sceptical by nature. And the top-down call right now is that it’s time to move into developed markets.”
Landers – a bottom-up investor – is moving into Brazil. Overall, his funds are overweight the country at 72 per cent of assets under management against a benchmark of 67 per cent. He has increased that overweight by 1.5 percentage points since January, moving money into Brazil from Mexico and Peru.
“The old rule is that Latin America is a basket case and it will go bust in the end,” he says. “It’s always hard to say things are different this time – but things are different this time.”
Landers says the growth that lifted 20m Brazilians into the middle class since 2003 is here to stay – he reckons 25m more will join them over the next five years (in a total population of 200m).
And while he shares many investor concerns – low standards of eduction, high interest rates, a clear liking for big government among the ruling Workers’ Party – he argues there has been a fundamental shift in governance.
“The new social democratic view is that you may want big government, but you can only have it if you can afford it.”
So the government has won part of its battle for credibility. Most investors, however, are still watching and waiting.
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