Principal seeks clarity on rate cuts to label Brazil stocks a 'buy'

Principal Financial

24/07/2023 10:00

By Gabriel Araujo
       SAO PAULO, July 24 (Reuters) - Principal Financial Group
 PFG.O  wants more clarity on Brazil's expected interest rate
cuts before it gives equities in Latin America's largest economy
a "buy" recommendation, a top executive at its asset management
business told Reuters.
    With annual headline inflation slowing to its lowest in
nearly three years, Brazil's central bank is widely forecast to
start lowering borrowing costs from a six-year high of 13.75%
when policymakers meet on Aug. 1-2.
    Economists, however, disagree on the size of the expected
August cut to the benchmark interest rate, as well as future
moves the central bank will implement.
    "Today we're Brazil 'equal weight', but closely watching the
pace of central bank easing expectations for 2024," Principal
Asset Management's Chief Investment Officer Todd Jablonski said.
    "In fact, I'm pretty positively inclined towards Brazilian
equities," he noted. "If I just knew with a little more
certainty how many rate cuts, how fast the rate cuts will come,
even the clarity of the path - I think that would be part of the
reason to potentially go 'overweight' on Brazil."
    The move would make Brazil, where Principal owns asset
manager Claritas, an area of opportunity for investing in
equities.
    Current equity "buys" for Principal, which manages more than
$660 billion globally, include Latin America's No. 2 economy
Mexico, which has benefited from the nearshoring trend, as well
as some "pockets" of Europe and Asia, including Japan, South
Korea and Singapore.
    Overall, however, the group recommends lowering exposure to
stocks in favor of fixed income, a view supported by its
forecast of a mild global recession in the fourth quarter driven
by a slowing U.S. economy.
    "Some declared the 60/40 portfolio was dead," Jablonski
said, referring to the strategy of hedging against market
declines by investing 60% in equities and 40% in bonds.
    "But the correlation between stocks and bonds is coming
down, so the 60/40 is quite healthy, alive and well."

 (Reporting by Gabriel Araujo; Editing by Sharon Singleton)
 ((Gabriel.Araujo2@thomsonreuters.com; +55 11 5047-3352;))