Principal seeks clarity on rate cuts to label Brazil stocks a 'buy'
By Gabriel Araujo
SAO PAULO, July 24 (Reuters) - Principal Financial Group 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)
