As some of Wall Street’s largest banks urge clients to take optimistic positions on Brazil, local hedge funds are expressing skepticism. Wall Street firms such as Morgan Stanley and UBS Group AG are pushing bullish trades, pointing to signs that the worst may be over for Brazil’s markets. However, major Brazilian hedge funds, including Verde Asset Management and Ibiuna Investimentos, remain cautious, citing concerns over the country’s fiscal outlook.
Brazil’s financial markets have underperformed significantly this year, with the Brazilian real dropping more than 11%, making it the worst-performing currency among 16 major global currencies. Hedge funds in Brazil are betting on a continued weakening of the real and are skeptical that recent optimism from global banks will pan out. According to Bloomberg, local investors see no signs of fiscal improvement, with inflationary pressures compounded by the spending spree of President Luiz Inacio Lula da Silva’s administration.
Gustavo Pessoa, a founding partner of Legacy Capital, expressed concerns about the government’s fiscal strategy, stating, “There’s nothing suggesting that the fiscal outlook is improving.” He further noted that inflation is unlikely to be tamed quickly, creating a challenging environment for interest-rate futures.
In contrast, foreign banks like Barclays Plc argue that the pessimism surrounding Brazil may have peaked and are recommending buying the real. UBS strategists, including Manik Narain, have suggested that the bad news is already priced in, making Brazilian assets attractive to long-term investors.
However, concerns remain, particularly around Lula’s fiscal policies and the impact of extreme weather on inflation. Fabricio Taschetto, chief investment officer at Ace Capital, warned that energy price spikes and agricultural disruptions could further complicate the outlook.
Despite the contrasting views, Brazilian hedge funds continue to approach the market with caution.
