Templeton to Salient Eyeing Brazil as Inflows Gush After Selloff

(Bloomberg) -- Emerging-market stock pickers are using the corruption scandal surrounding Brazil President Michel Temer as an opportunity to pile into a market they already loved.

Flows into Brazilian equities from global and regional funds totaled $760 million from May 19 through Thursday, the most in almost five years, according to consultancy EPFR Global. While allegations that Temer was involved in a bribery scheme sent local markets into a selloff May 18, overseas investors snapped up the nation’s equities in the following days after a valuation measure plunged to the lowest in more than a year.

Foreigners poured money into Brazil at the same time tens of thousands of protesters were mustering outside Congress to demand Temer’s removal. On Wednesday, demonstrators set a ministry building ablaze, forcing some offices to close. Regardless of the turmoil -- and even if Temer is forced out -- his plans to shore up the country’s finances by overhauling the pension system and spur growth with new labor rules will ultimately go through, according to Mark Mobius, the executive chairman of Templeton Emerging Markets Group.

“We are seeing value in almost every sector in Brazil simply because the market is depressed in all directions,” Mobius wrote in an email. He recommends buying banking and retail stocks.

The optimism is a holdover from the past year and a half, when investors made Brazil’s real and its stocks among the world’s best performers on optimism the country would emerge from its worst recession in a century ready to return to the growth rates that made it a rising star at the turn of the century.

Morgan Harting, a portfolio manager at AllianceBernstein, said on Bloomberg Television that Temer will likely be ousted “one way or another” next month, clearing the way for someone new to take the helm and push through the economic overhaul that the president had championed. He said last week’s selloff made the market even more undervalued than it had already been.

Harting favors Brazilian bonds, where he sees better risk-adjusted returns than equities, and said he’s buying the Brazilian real.

Since sinking 8.8 percent on the day of the selloff, the Ibovespa has gained 5.6 percent. Brazil-focused exchange-traded funds attracted $856 million in inflows over the past week, the most among emerging-market nations, according to data compiled by Bloomberg.

“There are many different outcomes obviously of what could happen in the political process,” said Aaron Visse, an emerging-market portfolio manager at Salient Partners, which oversees $14 billion. “But we think there are companies that you can invest in in Brazil today that are going to be able to deliver steady, stable growth.”

To contact the reporters on this story: Ben Bartenstein in Lima at bbartenstei3@bloomberg.net, Isabella Cota in Mexico City at icota@bloomberg.net.

To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Brendan Walsh