Renowned Brazil Bear Now Says His Peers Are Too Gloomy
Renowned Brazil Bear Now Says His Peers Are Too Gloomy
(Bloomberg) -- Luis Stuhlberger used to be one of Brazil’s most bearish investors. Now, he’s saying his peers are the ones too pessimistic with Latin America’s largest economy.
The legendary money manager, whose flagship Verde hedge fund has posted a whopping 16,800% return since its inception nearly two decades ago, took advantage of the early May swings in Brazilian markets to increase his bet on the country’s stocks, according to a monthly note from Verde Asset Management. The firm also says odds Brazil will approve a robust pension reform -- a key piece of the country’s efforts to shore up its fiscal accounts -- are growing.
“We still see an excess of pessimism with economic growth and that keeps us comfortable with our position in stocks, despite the recent gains,” according to the document.
Despite a rocky start to the month as global trade concerns mounted, Brazilian stocks posted their first gain in the month of May since 2009 amid better prospects for social security reform. Economic growth, however, has been elusive: activity fell in the first quarter, the first contraction since 2016, and economists have been slashing 2019 growth forecasts.
Verde’s increased bet on stocks marks a stark contrast to another of the nation’s hedge-fund powerhouses, SPX Capital, which scrapped its net-long position in Brazilian equities in April. At the time, SPX said political uncertainty was “another hindrance to growth.”
Read More: Brazil Hedge-Fund Powerhouse SPX Is Done Betting on Local Stocks
While optimistic with Brazil, Verde said it substantially reduced its U.S. holdings in May and fears U.S. rate cuts may not be enough to offset shocks brought by the tariff war. That scenario is leading it to keep a reduced position in global risk assets.
Brazil “isn’t immune to global uncertainty, but given the volatility of the previous months and lighter positioning of investors, the local dynamics should be dominant,” Verde’s letter said.
The optimism paid off in May, with the firm’s flagship fund posting a total return of 1.28%, well above the 0.54% return of the inter-bank rate known as DI, the fund’s benchmark. For the whole year, the fund is outperforming its benchmark by almost 4 percentage points.
To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Felipe Marques in Sao Paulo at fmarques10@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Julia Leite, Daniel Cancel
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