Top Brazil Hedge Fund Doubles Down on State-Controlled Companies

(Bloomberg) -- One of Brazil’s top-performing fund managers has increased bets on the country’s largest state-controlled lender Banco do Brasil SA and state-owned utility Cia Energetica de Minas Gerais after recent underperformance.

"These stocks have been lagging behind and are cheap, also taking into account good perspectives for an improvement in fundamentals," said Joao Braga, co-head of equities at XP Asset Management. While Brazil’s equity benchmark Ibovespa index has gained more than 6 percent this year, Banco do Brasil has advanced 2.5 percent and Cemig is down 0.6 percent.

According to Braga, there’s room for Brazilian stocks to extend a 9 percent rally since President Jair Bolsonaro was elected last October, as current levels aren’t factoring in the positive impact of lower interest rates and continued economic growth. Brazilian stocks are currently trading at 11.7 times estimated earnings, below the 12.8 average for the past five years, according to data compiled by Bloomberg.

The XP Long Biased fund, which has outperformed 99 percent of its peers in the past 5 years, has positions in Brazil’s mall operator Iguatemi Empresa de Shopping Centers SA and retailers Lojas Americanas SA and Via Varejo SA. Braga also likes airliner Azul SA.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Peter Millard, Walter Brandimarte

©2019 Bloomberg L.P.