Brazil’s Biggest Fund Manager Bets on Commodity Rally

Date: Wednesday, September 30, 2009
Author: Alexander Ragir, Bloomberg

Oil prices and Brazilian stocks have room to rally as investors underestimate the speed of the global economic recovery, said Joao Ayres Rabello, the president of BB DTVM, the nation’s biggest asset-management firm.

Real estate companies, which have more than doubled this year, and raw-material exporters may be poised for the biggest advance among Brazilian stocks, said Rabello, who oversees the equivalent of $167 billion in assets at BB DTVM, the asset- management arm of Banco do Brasil SA. The firm will begin raising money tomorrow for a fund that will bet on gains in oil prices and reimburse investors if futures contracts traded in New York decline, he said.

“This is a call on global growth and the possible demand for oil,” Rabello said in a telephone interview from Rio de Janeiro. “The recovery of commodities and rebound in the domestic market will probably happen a bit faster than people expect, leading us to believe that profits will be better and it will bolster the market.”

Record-low interest rates and tax cuts helped pull Latin America’s biggest economy out of a recession in the second quarter. The $1.6 trillion economy will expand 4.5 percent next year, according to the median estimate in a central bank survey of about 100 analysts published yesterday. Rabello declined to give forecasts for economic growth or stocks.

Brazil’s Bovespa index has surged 62 percent in 2009, led by homebuilders Rossi Residencial SA and Gafisa SA, on speculation consumer demand will rebound as the economy grows. The BM&FBovespa Real Estate Index has jumped 178 percent.

Oil Advance

Oil futures contracts in New York have climbed 50 percent this year as a decline in the dollar made commodities more attractive and rising equity markets buoyed investor confidence. Rabello’s new fund, called BB Multimercado Capital Protegido Petroleo Private FI LP, is being offered to so-called qualified investors and will be closed to withdrawals for two years.

The advance in commodities, which account for about two- thirds of Brazilian exports, may not spur gains in Brazil’s currency, Rabello said. The real surged 27 percent this year against the dollar on higher raw-material prices and speculation share sales will attract funds from abroad.

“There’s a lot of other variables for the currency gains, besides commodities,” said Rabello. “It’s being influenced a lot by foreign inflows and speculation as companies raising capital.”

Corporate Bonds

Falling interest rates may spur Brazilian pension funds to sell as much as 70 billion reais ($39.1 billion) of government bonds and add to holdings in hedge funds, corporate bonds, stocks and private equity over the next three years, according to Marcelo Mello, vice-president of Sao Paulo-based SulAmerica Investimentos, a unit of insurer Sul America SA.

BB DTVM is analyzing “every” corporate bond sale, according to Rabello. Credit markets offers a “good opportunity,” he said.

Asset-backed securities are also going to “come back” after stalling last year as the global financial crisis intensified, he said. Asset-backed commercial paper funds attracted 18 billion reais this year, the most of any group after the 27 billion in hedge fund inflows, according the national association of funds called Anbid.

“The most important thing now is investors are coming back from the crisis and looking for alternatives that give you a bit more return and adding a bit of risk,” said Rabello. “It’s a normalization of a market that’s become more mature” after the global economic crisis.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net