As is clear from the graph below, while in local currency terms the Brazilian market has been pretty volatile in the past five years, falling to a five-year trough at the end of 2015, it has risen over 40% this year.
It was this dismal performance last year that led a number of investors to look at the South American country as an interesting contrarian pond in which to fish, but the recovery since January, that coincided with the volume of the calls for Rousseff’s impeachment, has left some feeling that it might be time to move on.
Tcam CIO, Haig Bathgate, is one such investor. Bathgate said the firm had put on its Brazilian position in the back end of 2015 on a three-year view that things were unlikely to get much worse for the country.
“The whole thing moved much more rapidly than we were expecting, we made 50% in six months. In that sort of situation, it is best not to look a gift horse in the mouth.”
As a result, he said, Tcam has sold out of its Brazil position entirely and has decreased its emerging markets exposure more generally.
James Sullivan, Coram Asset Management director, has also sold down his exposure to Brazil from 4% at the start of the year to around 1%.
“The market has moved from single digit p/e multiples towards the low teens and is now in line with many other emerging economies,” he said. “The adage ‘better to travel than to arrive’ I believe is in play here and the momentum behind the ‘parliamentary coup’ has now largely played out.”
And, while he said some value might remain for braver souls in the government bond market, given that local currency debt currently yields around 12%, he is inclined to move on as the economy remains entrenched in difficulties.
