Credit Suisse's Stuhlberger: Adding Brazil Assets Gradually

Asset manager Credit Suisse Hedging Griffo is gradually adding Brazilian assets as domestic blue-chip stocks now look fairly valued and a correction in prices for some local debt notes may be losing momentum, Chief Investment Officer Luis Stuhlberger said on Monday.

Stuhlberger, whose Fundo Verde oversees about 20 billion reais ($8.3 billion) in assets, expects that whoever wins the Brazilian presidential election in October will implement policies to narrow the nation's budget deficit. The local interest rate and currency markets have already priced in additional risks down the road, he added.

"I am not moving more investments abroad. I am making a marginal move back toward Brazil," Stuhlberger said at a Credit Suisse event in São Paulo, adding that he began to pile up stocks since December. Credit Suisse Hedging Griffo is Credit Suisse Group AG's asset management unit in Brazil.

Without detailing his recent moves, Stuhlberger said that prices for some of Brazil's largest and most liquid companies reached "reasonable" levels. In several occasions, he has recommended investors to buy companies with strong earnings performance whose shares trade at two or three times book value.

He also advised investors to remain "selective" with their stock picking in Brazil, trying to buy companies with robust profits. He said, for instance, that a "de-rating of consumer stocks is structural," meaning that a drop in prices may respond to issues other than cyclical.

Stuhlberger's remarks pits him against global investment powerhouses such as Pacific Investment Management Co, which expect last year's market decline in Brazil to extend into 2014 if macroeconomic imbalances deepen, political noise on the way to elections increases and global market turmoil rattles investor confidence.

He said the biggest question mark regarding Brazil is whether Latin America's largest economy can have sustainable government finances going forward. As a result, long-term government debt yields are unlikely to decline and, even if inflation-linked notes currently offer high returns, there is little room for price appreciation.


A recent rout in emerging market assets is not the result of the U.S. Federal Reserve's decision to scale down years of monetary stimulus, he said, adding that "such analysis looks to me as erroneous, to say the least".

Stuhlberger said what explains the underperformance of Brazil, India, South Africa, Turkey and Indonesia in recent weeks is their lack of growth, deteriorating external and fiscal imbalances, lack of structural economic reforms and eroding policy credibility.

"In a deflationary world, these countries continue to post high inflation rates and low growth readings," he said. Those five countries have recently been labeled "The Fragile Five."

In 2013, the potential withdrawal of monetary stimulus in the United States and a deterioration in Brazil's fiscal position hurt markets. The October vote, in which President Dilma Rousseff is expected to run for re-election, is a worry to investors. Polls showed that she would beat any challenger if the elections were held now.

Stuhlberger expects the winner of the election to fine-tune policies and restore credibility.

Some of the names that Fundo Verde bought in include shares in state-controlled oil company Petróleo Brasileiro SA . He said, however, that he partially regrets that decision - shares of the company are down a combined 14 percent over the past month.

Fundo Verde is also Brazil's oldest hedge fund.

(By Silvio Cascione and Guillermo Parra-Bernal)