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At a Latin American hedge fund conference in Miami recently I had the chance to speak with members of Richo investments who manage the Richo Offshore Hedge Fund. Fund manager William Jedwab pointed out that many foreign investors perceive Brazil as a commodity play, and historically its economy has been highly correlated to food, basic materials, and energy prices. Financial liquidity also played a major role, as we saw during the 70’s petrodollar recycling boom and bust, as well as the external debt crises of the 80’s and several crises in the 90’s (Mexico, Asia and Russia).
Investors would have yet to fully appreciate that the Brazil of today is significantly different. The external debt to GDP ratio has been decreasing and there has been significant growth in the issuance of local currency public debt. Further, with 25% of the population now college educated there are 45 million people that have western world style productivity and make up a large domestic consumer market. These evolutions have made Brazil, the largest economy and most established capital market in Latin America, less vulnerable to external shocks.
That said, when commodities are booming, Brazilian investments are typically growth stories. Conversely, when liquidity is tightening, a value approach is more prudent. Richo combines sound top down macro analyses and bottom up fundamental analysis of industries and market sectors to evaluate the current opportunity set. Once the team ...................... To view our full article Click here
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