BlackRock: banking on Brazilian growth

BlackRock’s Latin American fund manager Will Landers has suffered a “challenging” start to the year as a lull in global sentiment has damaged prices in the region.

The manager says issues outside Latin America damaged sentiment, but the domestic growth story remained intact and would not be affected.

The fund saw a 10.7 per cent loss on its assets in January as issues such as the Greek crisis marred attitudes towards emerging areas.

But Mr Landers has continued to focus on domestic growth – boosting his Brazil overweight and reducing his Mexico exposure slightly, as the nation is more exposed to the troubled US economy.

“The challenges with Mexico are still there,” he says. “The growth of the US economy is still likely to be slower than hoped. “But in Brazil the combination of the domestic growth story, with the Brazilian middle class’s purchasing power continuing to rise, and interest rates as low as they’ve ever been is compelling.”

Shares of the manager’s BlackRock Latin American Investment Trust have risen by 366 per cent over the past five years on the back of stellar growth in the region.

They peaked at 645p at the end of May 2008, before tumbling to a low of 220p in late October as the financial crisis took hold, but have since recovered to about 669p.

Despite this recovery they are still trading at a sharp discount to the total value of the fund’s assets – its total market capitalisation of about £293.3m represented a 55 per cent discount to its net asset value of £651.3m last week.

Mr Landers said Brazil was seeing earnings growth over 30 per cent, with loan growth and mortgage growth continuing to pick up.

“We have added a little bit to Petrobras on weakness,” he says. “I think a lot of the fears around it were overdone.”

Elsewhere, the manager has taken money out of the steel sector and pumped it into Brazilian iron ore mining giant Vale.

The move is paying off and on Monday last week the shares rose as it secured a 90 per cent rise in the price of the iron ore it sells to Asia.

Mr Landers did not participate in the initial public offering (IPO) of OSX – the Brazilian shipbuilder owned by local billionaire Eike Batista.

“He is a visionary guy with a lot going on,” says Mr Landers. “But it was a bit of a stretch – the valuations did not make sense to us.”

The move was proved right when on March 17 Mr Batista was forced to cut the value of the IPO by two-thirds thanks to a lack of interest on markets.

While he avoided OSX the manager has bought Banco Itau – the private sector bank that is merging with Unibanco to form Itau Unibanco – on the back of recent weakness.

“It is in the process of merging so there are still a lot of synergies that can be found, along with strong earnings growth,” says the manager.

In Mexico the manager has exited cement giant Cemex, saying its results have disappointed.

He dismisses fears over the Brazilian government’s decision last year to bring in a 2 per cent tax on foreign investment into the region to control its currency, the real.

“There is nothing saying they will raise it right now,” he says. “The real is very much within the range they want.”