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Brazil scandal: top LatAm manager targets exporters as real drops

Brazil scandal: top LatAm manager targets exporters as real drops

The dust has not yet settled in Brazil after fresh allegations of bribery involving Brazil’s embattled president Michel Temer emerged on Wednesday evening, but Investec’s Rafael Mendoza is looking to seize on opportunities created by the subsequent market sell-off.

The Citywire A-rated manager of the Investec GSF Latin American Equity fund told Citywire Americas that, despite being concerned over what this latest bribery scandal means for the country’s much-needed reforms, he remains positive on Brazil’s medium to long term outlook and is looking to take advantage of the current market turmoil.

‘Although we are still digesting the new information, we are looking to increase exposure to attractively valued exporters that benefit from the Brazilian real depreciation,’ said Mendoza.

He added: 'We see an overshooting on [yesterday’s] market action on many stocks. There will be additional opportunities for companies with strong balance sheets to gain market share from weaker peers, and from those names that are uncorrelated to the local macro.

‘We are undergoing releases of first quarter 2017 corporate earnings; we must highlight the quality of recent balance sheet announcements, which are pushing sell-side earnings estimates higher.’

Since Brazil entered its worst recession in history, many core Brazilian companies made changes to their operating structure and balance sheets, creating leaner and more efficient companies. These improvements mean that ‘the downside [this time] is relatively small compared to the environment we had a year ago’, said Mendoza.

Many commentators agree that the main victim of this new scandal will not be the market but the pension reforms.

However, Mendoza believes they are not dead on arrival but simply delayed.

‘We believe that ultimately, the reform agenda is unavoidable and will be voted into law. Long term, this young democracy is likely to move forward; away from populism, corruption, and strengthen its’ institutions. The judicial system keeps on working and continues to prove its’ independence.’

In the recovery Latin America's equity market has experienced over the past year, Mendoza has been the outstanding performer. Over the past 12 months to the end of April, Mendoza is the highest returning manager in Latin American equity with returns of 23.9%. This is while the average manager returned 12.8% over the same period.

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