Brazil trapped in 'vicious circle', says LO's Wozniak
Emerging market redemptions have caused the Brazilian government to cut taxes on inflows, reversing policies set in motion earlier this year.
by Emily Blewett on Dec 07, 2011 at 16:02
As Brazil’s growth estimate is revised downwards by finance minister Mantega, Michal Wozniak at Lombard Odier said the country is ‘cursed by two opposing forces’.
As while investment inflows remain key for growth they also have the potential to upset the country’s economic balance.
‘When things are good in the market, there are massive inflows. We then see high interest rates and the currency appreciates which then makes exports less competitive,’ said the manager of the Swiss asset manager’s EM bond , EM currency and bond and EM local currency and bonds funds.
However despite this, he says it is ‘unavoidable’ that Brazil, as an emerging market economy, will need more investment going forward.
It’s for this reason that Wozniak believes recent measures taken by the government to cut rates and taxes on investments in the country signals a broader flight of capital from emerging market assets.
‘Now these economies are slowing down, you ask what is going to happen to the portfolios? It is a vicious circle,’ he said.
‘This [tax cuts] is not about hot money, this is a concern that investment towards emerging markets is slowing down.’
Wozniak, who oversees just over $100 million at the firm, says his exposure towards the country is currently neutral but he does see a buying opportunity if there is a ‘significant’ slowdown in the economy.
He says he would then buy the country’s debt ahead of expected interest rate cuts.
‘Developing countries like Brazil still have the edge over developed countries in that they still have room to manoeuvre through fiscal and monetary policies.’
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