While some of Wall Street’s biggest banks urge their clients to adopt optimistic positions on Brazil, local hedge funds express skepticism. Wall Street firms such as Morgan Stanley and UBS Group AG are promoting bullish bets, signaling that the worst may be over for Brazil’s markets. However, major Brazilian hedge funds, such as Verde Asset Management and Ibiuna Investimentos, remain cautious, citing concerns about the country’s fiscal outlook.
Brazil’s financial markets have significantly underperformed this year, with the Brazilian real falling more than 11%, becoming the worst-performing currency among 16 major currencies globally. Hedge funds in Brazil are betting on continued depreciation of the real and are skeptical that global banks’ recent optimism will materialize. According to Bloomberg, local investors see no signs of fiscal improvement, with inflationary pressures exacerbated by increased spending by President Luiz Inácio Lula da Silva’s government.
Gustavo Pessoa, founding partner of Legacy Capital, expressed concern about the government’s fiscal strategy, stating: “There is nothing to suggest that the fiscal picture is improving.” He also noted that inflation is unlikely to be brought under control quickly, creating a challenging environment for interest rate futures.
In contrast, foreign banks such as Barclays Plc argue that pessimism around Brazil may have peaked and are recommending buying the real. UBS strategists, including Manik Narain, have suggested that the bad news is already reflected in prices, making Brazilian assets attractive to long-term investors.
However, concerns remain, particularly around Lula’s fiscal policies and the impact of extreme weather events on inflation. Fabricio Taschetto, chief investment officer at Ace Capital, warned that increases in energy prices and agricultural disruptions could further complicate the picture.
Despite contrasting views, Brazilian hedge funds continue to approach the market cautiously.
