Brazil Stock Investment to Jump, Credit Suisse Says

Date: Wednesday, May 27, 2009
Author: Paulo Winterstein, Bloomberg.com

Brazil’s smaller companies will lure more of the funds flowing into equities over the next five years as investors leave fixed income because of falling interest rates, said the manager of the nation’s biggest hedge fund.

“The volume in stock funds is tiny,” said Luis Stuhlberger, investment director of Credit Suisse Hedging Griffo, a unit of Switzerland’s biggest bank. After underperforming commodity producers with higher market values last year, “companies with a market cap between 3 billion and 4 billion reais will be the big winners going forward, even though we won’t go back to previous levels,” he said during a conference in Sao Paulo.

Stock investments account for about 13 percent of the 1.2 trillion reais ($592 billion) managed by Brazil’s investment funds, said Stuhlberger, whose 1.9 billion reais HG Verde FI Multimercado fund has outperformed 97 percent of peers in 2009.

Equities may account for as much as 29 percent of the fund industry’s investments by 2013, McKinsey & Co. partner Guilherme Lima said at the same conference.

The BM&FBovespa Small Cap index, which includes companies with a market value of about 4 billion reais or less, dropped 53 percent last year, compared with a 41 percent decline for the BM&FBovespa MidLarge Cap index. The SmallCap index is outperforming the MidLarge Cap index and the broader Bovespa index this year, climbing 43 percent.

Fixed-Income Outlook

The Bovespa index has climbed 37 percent this year to more than 50,000 points, after tumbling 41 percent in 2008, the most ever.

Brazil’s fund industry will likely decrease its allocation of fixed-income investments during the next five years, McKinsey’s Lima said at the conference.

Fixed-income funds, which now account for about two thirds of investments, will likely fall to 42 percent as investors switch to stock funds and hedge funds, known in Brazil as multimercados. By 2013, hedge funds and stocks will likely make up 58 percent of investments, compared with 38 percent now, Lima said.

Brazil’s central bank has slashed the benchmark Selic interest rate three times this year to 10.25 percent from 13.75 percent.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.