Brazil Bonds `Extremely Attractive' Wherever Rates Are Headed, Arida Says
By - Sep 17, 2010 2:27 AM GMT-0300 Fri Sep 17 05:27:33 GMT 2010
Brazilian bonds are “extremely attractive” investments because of their high yields while equities in Latin America’s largest economy may be poised to rebound, according to former central bank President Persio Arida.
The nation’s bonds are good investments regardless of where interest rates are headed, the Arida, Sao Paulo-based chairman of asset management at BTG Pactual, which oversees $40 billion in assets, said in an interview in Beijing yesterday. Brazil equities, which have underperformed the emerging markets gauge this year, will “likely resume a rally,” said Arida, president of the central bank in 1995 and president of the development bank known as BNDES from 1993 to 1994.
Policy makers held the benchmark rate at 10.75 percent Sept. 1, saying it was high enough to ensure inflation would remain in line with the government’s 4.5 percent target. The prospect of faster economic growth and inflation is spurring traders to wager the central bank will resume interest-rate increases early next year and push the Selic up to 12 percent by no later than October 2011, according to Bloomberg estimates based on futures contracts.
Interest rates in Brazil are the highest in the world after Lebanon, Pakistan and Venezuela, attracting carry-trade investors, who borrow in a country with low rates to buy higher- yielding assets elsewhere. Banco Central do Brasil President Henrique Meirelles boosted benchmark borrowing costs by 200 basis points, or 2 percentage points, to 10.75 percent this year, the largest increase among 56 central banks tracked by Bloomberg.
Brazilian inflation-linked bonds offer safety from volatility for overseas investors, Ludwig He, head of the public markets investment department at China Investment Corp. said yesterday in Beijing. CIC, China’s sovereign wealth fund, owns some Brazilian bonds and will pursue a “diversified global strategy” for its investments, he said.
Faster economic growth may boost the nation’s equities, BTG’s Arida said, declining to provide his favorite industries or stocks. The benchmark Bovespa Index has declined 1.4 percent this year, compared with a 5.1 percent decline in the MSCI Emerging Markets Index.
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