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Pimco sees Brazil valuations 'attractive' in fixed income

Paula Arend Laier and Guillermo Parra-Bernal
The headquarters of investment firm PIMCO is shown in this photo taken in Newport Beach, California January 26, 2012. REUTERS/Lori Shepler

By Paula Arend Laier and Guillermo Parra-Bernal

SAO PAULO (Reuters) - Fixed-income instruments in Brazil are trading currently at attractive prices for investors with a long-term focus, a senior fund manager at Pacific Investment Management Co said on Tuesday, a fact validated by a spike in investment inflows for the asset class so far this year.

Taking advantage of higher interest rates that drove down prices for fixed-income investments in Brazil, money managers at the world's biggest bond fund are pouring more money into banks loans and credit products, said Alec Kersman, head of Latin America and the Caribbean at Pimco, as the firm is known.

"We are seeing a transition from core bonds to other strategies within the firm - it's very exciting to see what clients are doing and reacting to market evolution," Rio de Janeiro-based Kersman told Trading Brazil, a Thomson Reuters' chatroom for market participants.

Some of the strategies currently implemented by Pimco in Brazil and Latin America include adding bank loans, and hedging back the duration component of some credit products, Kersman said, without specifying. Pimco, which oversees about $1.9 trillion in assets, is also eyeing potential purchases of Brazilian corporate bonds in the wake of a spike in yields, he noted.

According to central bank data, investors poured a net $5.87 billion into Brazil's local debt markets in the first two months of this year, the largest inflow for the asset class since January 1995. That came in the wake of rising borrowing costs for government debt; yields on Brazilian government inflation-linked notes due in 2019 are now paying 6.38 percentage points above the inflation rate, compared with 6.2 percent at the start of the year.

Pimco is scouring for buying opportunities in Brazil at a time where confidence in Latin America's largest economy is at a multi-year low. On Monday, ratings company Standard and Poor's trimmed the sovereign debt rating of Brazil's government to "BBB minus," the lowest investment-grade ranking, mainly because of a deterioration in public finances.

The S&P decision was vastly anticipated by market participants, Kersman said. Asked whether Brazil's best moment is a thing of the past, he said the country has a "great future ahead for itself" and urged investors not to confuse cyclical dynamics with longer-term opportunities.

Pimco has no plans to withdraw from Brazil, Kersman said, adding that the fund needs to "be mindful of possible volatility and scaling of investments."

In fact, money managers at Pimco are looking for companies that can expand at a faster pace than gross domestic product in "a consistent manner and that ideally are delivering," Kersman added.

(With additional reporting by Tiago Pariz in São Paulo; Editing by Bernard Orr)