Jpmorgan Brazil Investment Share Discussion Threads

[quepassa] 30/9/2016 08:00

Oil prices moving higher should benefit Brazil economy greatly.

ALL IMO. DYOR.
QP

[loganair] 27/9/2016 17:18

Emerging markets recover, but now for the hard part by Michelle McGagh:

Emerging markets have been strong performers this year, but now earnings need to improve, say investment trust managers.

Emerging markets have only entered the first leg of a recovery and company earnings need to improve before a genuine turnaround can take hold.

Emerging markets have had a rocky few years but investments trusts focused on the sector are among the best performers of 2016. Shares in these trusts have risen 31% on average since the start of the year.

The outcome of the EU referendum in June provided a further boost to emerging market investments as the value of sterling fell, however, it is only just the start of the recovery.

Carlos Hardenberg, manager of the Templeton Emerging Markets investment trust, said the ‘pendulum was swinging back’ in favour or emerging markets. Shares in the trust are up 42.8% this year, making up all the ground lost in a torrid 2015. Hardenberg took control the fund from veteran emerging market manager Mark Mobius last September.

‘The market always over reacts when the general consensus turns negative,’ said Hardenberg. ‘Share prices are more volatile than underlying earnings. We are seeing industrial production, as a measure of recovery, increasing in emerging markets...if you go country by country, there is a healthy degree of orders.

‘GDP growth is slowly improving and over the next two years markets like Russia and Brazil will see the biggest relative improvements.’

Omar Negyal, manager of the JPMorgan Global Emerging Markets Income trust, targets income rather than capital growth in his fund and said the real recovery in emerging markets will have begun when company earnings stabilise.

‘What we are seeing in emerging markets is the first leg of recovery,’ he said.

‘China is stabilising and there is an improvement in trade balances in emerging markets. For the second leg [of recovery] to come through, earnings have to start to improve. We are at the start of that,' he said.

He said improved earnings would help the ‘rerating of high yield equities in the asset class’.

China has been the main problem for emerging markets, with slowing growth dragging the sector down.


Hardenberg holds 19% of his trust in the country. He said there were still concerns around housing and ‘over capacity in steel and cement that will have to be dealt with in future’.

‘The big negative for emerging markets is the overall impact of global uncertainty and demand and supply in commodity markets,’ said Hardenberg.

Former chief economist at the International Monetary Fund Ken Rogoff has also warned of the threat China poses to the global economy due to its high levels of debt. He said there was ‘no question’ that ‘China is the greatest risk’.

‘China has been the engine of global growth,’ he said. ‘China has been really important. But China is going through a big political revolution. And I think the economy is slowing down much more than the official figures show,’ he said.

However, the good news is that sentiment towards other emerging markets is becoming more positive and local emerging market currencies are ‘slowly recovery’ and companies are finally keeping ‘capital expenditure down and concentrating on cost management’, said Hardenberg.

Emerging companies in mid and small cap - there are more opportunities there,’ said Hardenberg, adding that many tech companies - of which he has been a fan - were ‘leap-frogging’ more established businesses.

In particular, Hardenberg said he looked for companies ‘that have sustainable business models in an area with a high barrier to entry’.

‘We are expecting that emerging markets will see a sideways development over the next 12 months and there is a clear risk from China...and there is some danger already priced in,’ he said.

Although Asia is the largest geographic weighting in his trust, Hardenberg said he did not ‘have exposure to Chinese banks or insurance companies’ because of their poor asset quality and concerns the companies were ‘hiding how they are restructuring’.

China is the concern for Negyal, whose trust has mounted a recovery almost as impressive as Templeton's this year, with the shares up 38.6%.

‘China is very important for emerging markets at a quarter of the asset class and for the rest of the emerging markets it is vital... because it drives the rest of the emerging markets via trade links,’ he said.

‘That’s commodity prices in Latin America or manufactured goods in the rest of Asia. There are very few emerging markets that are isolated from China. From an economic perspective, Latin America will benefit from stabilisation [in China].’

Also important for Negyal is for emerging markets ‘to re-enter growth territory’ to ensure companies can continue to pay dividends.

‘Emerging market dividends and earnings have been under pressure,’ he said. ‘The near term outlook for dividends is still a concern and it is something we want to be cautious about but in the mid and long-term growth opportunities can be seen as well,’ said Negyal.

[loganair] 23/9/2016 15:51

The Brazilian economy has bottomed out - By Adrien Pichoud:

The Brazilian economy showed some signs of improvement in the last few months. Industrial production increased this summer after two years of nearly non-stop decline. Consumer and industrial confidence are continuing to edge higher and the IMF recently revised up its projection for 2017 GDP for a modest expansion of +0.5% (vs. nil growth before).

On the political front, the senate officially voted to impeach Dilma Rousseff following the corruption scandal in the Brazilian government. This will allow Temer’s more pro-business government to begin the expected reforms that are needed. – On the monetary policy side, the BCB is turning more dovish which suggests a possible easing cycle in the coming months.

Nevertheless, on the negative front, consumers are still suffering as incomes continue to fall and the unemployment rate rises above the 11% threshold. Moreover, the president will also face the difficult task of reducing the budget deficit.

Ultimately, the performance of the Brazilian economy and its stock market next year will largely depend on the evolution and implementation of the most important reforms.

[loganair] 13/9/2016 09:51

Brazil Is in a Shambles. Can the New President Save the Crumbling Economy? - by Otaviano Canuto (Executive Director on the Board of the World Bank for Brazil):

Now that impeached Brazilian President Dilma Rousseff is out of office, it is up to the newly empowered administration of President Michel Temer to clean up Brazil's macroeconomic mess. Can Temer's government save Brazil's crumbling economy?

The situation is certainly dire. In fact, Brazil has lately been experiencing the most powerful economic contraction in its recent history. Its per capita gross domestic product (GDP) will be more than 10% smaller this year than it was in 2013. And unemployment has soared to more than 11%, up four percentage points from January 2015.

Brazil has no easy route to recovery for a simple reason: the current rout derives from the intensification in recent years of long-standing economic vulnerabilities - in particular, fiscal profligacy and anemic productivity growth.

Today, counter-cyclical policies are not an option; there simply isn't enough fiscal or monetary space. This leaves Brazil's government with only one real option for restoring business confidence and reviving economic growth: tackling Brazil's structural weaknesses.

The good news is that Temer's government seems to recognize this imperative. Already, it has proposed to Brazil's Congress a constitutional amendment forbidding for the next 20 years nominal annual increases in public expenditures, including at the subnational level, that exceed the previous year's inflation rate.

Provided that inflation stabilizes at some lower level, such a cap would cause public expenditure as a share of GDP to decline as soon as the economy began to grow again. If increases in tax revenues accompany GDP growth, fiscal imbalances and the accumulation of public debt would automatically be addressed. At a time when Brazil has little flexibility in its budget, such a rule could turn out to be a fiscal game changer.

Of course, a cap on expenditure growth would not by itself eliminate the need to address existing budget rigidities. Temer's government has declared its intention to present to Congress a pension reform plan for precisely this reason.

As for productivity, the government is focused on reducing waste caused by insufficient infrastructure construction in recent decades. Scaling up infrastructure investment also promises to spur private investment in other sectors.

The key will be to fine-tune the division of responsibilities between the private and public sectors - including independent regulatory agencies - in the various segments of infrastructure services.

Temer's government also hopes to tap investment in human capital as a source of productivity growth. As it stands, private companies in Brazil invest less in personnel training than those in other countries with similar per capita incomes, owing largely to disincentives embedded in tax and labor laws - incentives that Temer's government has proposed to change.

To maximize the impact of these efforts, Temer's government should also focus on reducing waste in the private sector caused by other problems with the business environment. The more efficient use of human and material resources would make firms more competitive and boost Brazil's total-factor productivity, especially if Brazil's human capital were enhanced.

Add to that efforts to facilitate foreign trade, and Brazil's "animal spirits" of entrepreneurship could be unleashed, enabling Brazil to escape the current crisis and move toward a more prosperous future.

[quepassa] 02/9/2016 12:36

Thank you for the useful ongoing updates, loganair.

Much appreciated.

QP

[loganair] 25/8/2016 11:38

Brazil Markets Predict Economy to Grow 1.2 Percent in 2017.

The expectation of financial institutions for the Selic rate stays at 13.75% per annum at the end of 2016, and followed by 11% per annum at the end of 2017 and inflation to be 7.1% by the end of this year and 5.1% by the end of 2017.

[loganair] 14/8/2016 12:53

Brazil’s economy expanded at its fastest pace in one-and-a-half years in June, as improving business and consumer confidence drives an incipient recovery in industrial production and retail sales.

The central bank’s seasonally adjusted economic-activity index, a proxy for gross domestic product, rose 0.23 per cent in June from the previous month, after falling a revised 0.45 per cent in May.

It was its best performance since December, 2014.

Many economists see the economy improving in the second half of the year as confidence levels start to improve under the government of interim President Michel Temer.

“We believe that the stabilization of the industrial sector and a slowdown in the pace of contraction of retail sales and services will improve activity results in coming months,” economists with Sao Paulo-based bank Bradesco wrote in a research note.

Markets have rallied in recent months on bets the impeachment process will strengthen the hand of Acting President Michel Temer and improve his chances of reviving growth. He and his aides have said the ouster of his predecessor Dilma Rousseff, which could be decided this month, will allow him to pursue more ambitious reforms designed to shore up fiscal accounts and attract investment.

Analysts surveyed weekly by the central bank have also been revising up their GDP estimates, forecasting a milder recession in 2016 and a more robust rebound next year.

Consumer and business confidence are on the rise as well, leading to some gains in retail sales and industrial output.

The rebound in investor confidence will also require more work from the government to be sustained, according to central bank chief Ilan Goldfajn.”It’s fundamental the approval and implementation of reforms needed to rebuild the confidence of economic agents and to create conditions for the economy to recover with low inflation,” he said at an event in Sao Paulo.

But Latin America’s largest economy still faces numerous challenges.

[quepassa] 27/7/2016 14:10

At a similar time to investing in Brazil Investment Trust, I took a position in Mapfre - the major Spanish insurance company with large operations in Brazil.

Seems that the positive vibes recently emanating from Brazil are working for Mapfre too, which pays a very attractive dividend.

ALL IMO. DYOR.
QP

[quepassa] 26/7/2016 07:11

Good to see concrete evidence of confidence building again for Brazil.

The country launched last week a $1.5billion long-dated 2047 bond which attracted massive oversubscription with order books totalling reaching $6bn for the $1.5bn bond.

Consumer and business confidence is returning together with appetite from international investors who are becoming more comfortable again with the political situation and President Temer's interim government.

ALL IMO. DYOR.
QP

[quepassa] 21/7/2016 12:46

Thanks.

QP

[loganair] 21/7/2016 10:41

From Final Results:

The Board recommends an increased dividend of 0.5p per Ordinary share (2015: 0.4p). Subject to shareholders' approval at the forthcoming AGM on 7th September 2016, the dividend will be payable on 16th September 2016 to shareholders on the register at 19th August 2016.

In the long term, we believe that Brazil is past the worst of the recession, and we expect earnings to gradually recover from their very depressed levels.

[luckymouse] 20/7/2016 17:14

Quality run - rio in 2 wks :)

Brazil coming out of recession & Olympics usually gives a GDP lift.

[quepassa] 08/7/2016 18:22

Yes.

Vastly improved sentiment.

QP

[loganair] 08/7/2016 17:27

I see that the Negative NAV is starting to close in on Zero as at one time JPB was trading on a NAV of nearly -15%.

[brahmsnliszt] 08/7/2016 16:46

Marked higher on the close?

[quepassa] 07/7/2016 09:32

Interesting post.

Obrigado

QP

[loganair] 06/7/2016 17:34

By Kenneth Rapoza - “Green shoots” are appearing in the rubble that is the Brazilian economy.

For now, markets have been somewhat encouraged by the actions taken by the interim government of Michel Temer, Dilma’s former vice president from the Democratic Movement Party.

“The good news is that Temer is trying to do the right thing, even though his team gets picked off every two or three days for corruption issues or some other unethical behavior,” says emerging markets fund manager Mike Reynal from RS Investments in the U.S. At least two cabinet members were forced to resign when it was discovered that they were interested in manipulating justice in the Petrobras case at the Supreme Court.

On the policy front, Temer recently put in place a constitutional amendment to limit spending and give the government more flexibility on fiscal matters. If they can do that successfully, it enables the central bank to be more flexible as well. Falling inflation also means there’s a chance for massive interest rate cuts over the next year; at least 200 basis points estimates Reynal.

“There is pent up demand in Brazil,” Reynal says. “I was talking to one of the big housing developers a couple days ago and they are all tightening their belts and holding cash, but they are the first to say that demand in São Paulo is strong. In other words, people are willing to take the risk, but banks aren’t willing to give them a mortgage. When credit is that slow and that expensive how do you kick start the economy? You get interest rates to fall, and they are going to fall by the end of this year.”

Barclays Latin America fixed income team estimates that capital gets cheaper in Brazil by October.

If investors see the Apocalypse as being over, then the mood may be good for the return of foreign direct investment. That means more money for Brazil’s government, and in theory, job protection or creation.

For Brazil investors, the trigger is putting the bad news in the past and generating better news in the future. When that happens, Brazil’s stock market will rebound quickly, giving corporates more money, a sense of wealth, and maybe a chance at stopping the bloodletting in the labor markets.

“People are catching up to this story too late,” says Christoph Hofmann of the Ashmore Group in New York. “We made a lot of money on Brazilian bonds. You have to have a good sense of the market place. We think Dilma is going away,” he says. “That’s the assumption anyway.”

[quepassa] 06/7/2016 17:23

Thanks for last posts.

QP

[loganair] 06/7/2016 17:16

It seems to me, much of the rise in JPBs share price over the past couple of days has been the narrowing of its negative NAV.

[loganair] 04/7/2016 11:06

QP - For the past couple of weeks the economic data coming out of Brazil has been consistently negative such as a rise in unemployment and the deficit gap widening.

Hopefully as we´re aware, on the whole stock markets tend to be forward looking, where Brazil is likely to be in 6 months or a years time.

[quepassa] 01/7/2016 19:00

Thank you.

Do you believe that the rebound in crude and other commodities is a significant factor - or mainly more confidence in the political arena?

Appreciated.

Regards,

QP

[loganair] 01/7/2016 18:40

QP - The Brazilian economy has started to show signs of recovery with confidence improving after the government announced austerity measures, Finance Minister Henrique Meirelles said on Thursday.

It seems to me all about "confidence" "confidence" "confidence" in the Brazilian economy.

[quepassa] 01/7/2016 18:27

Another great day for Brazil Inv Trust.

loganair, could you kindly comment please on what is spurring this week's/fortnight's outperformance. Thank you.

ALL IMO. DYOR.
QP