Principal Asset Management upbeat on Latin America to counter China view

Vontobel Holding AG

27/02/2024 08:00

By Gabriel Araujo
       SAO PAULO, Feb 27 (Reuters) - Principal Financial
Group's  PFG.O  asset management business is bullish on Latin
American equities as interest rates come down and valuations
remain at compelling levels in the region, a top executive told
Reuters.
    The company's portfolio for emerging markets has an
"overweight" rating on Latin America, with Brazil being its
favorite choice, counterbalancing an "underweight" position on
China amid signs of weakness in the world's second-largest
economy.
    That makes the asset manager, which oversees $695 billion
globally, the latest to have bets placed on Brazil, joining the
likes of ETF provider Global X and Switzerland's Vontobel in
their view of discounted local equity valuations.
    "Going back 20 years, we find that Brazil has been cheaper
only 14% of the time," said Todd Jablonski, Principal Asset
Management's global head of multi-asset investing, despite a
late 2023 rally that saw the benchmark Bovespa  .BVSP  stock
index hit record highs.
    "Even though we have seen the valuations increase and the
fundamentals look pretty good, we still see upside because the
valuation remains below its long-term averages."
    "If an investor 'underweights' China, you need a market big
enough to hold that 'overweight.' And Brazil carries that
feature," he noted.
    Brazil's central bank started a monetary easing cycle in
August after holding its key Selic interest rate at 13.75% for
nearly a year to tame high inflation, and has so far delivered a
total of 250 basis points of rate cuts.
    Jablonski believes the central bank of Latin America's
largest economy will continue cutting rates in 50-basis-point
increments at its monetary policy meetings until getting the
Selic rate to 8.5%, a view he acknowledged was "a bit more
aggressive" than most market participants.
    Principal's optimism also extends to Latin America as a
whole, with Mexico being its second-favorite market, both on
compelling valuations and the benefits of the "nearshoring"
trend that is driving increased industrial investments there.
    "Brazil, Mexico, Colombia, Peru all delivered very strong
returns, greater than 30% U.S. dollar returns last year,"
Jablonski said. "And valuation is still attractive."

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