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(Bloomberg) -- The stock-market rally that made Brazil’s one of the world’s best performers last year has yet to sway foreign investors.Foreigners pulled 4.7 billion reais ($1.2 billion) out of local equities in 2019, according to data from the stock exchange. Excluding money generated by equity sales, the outflow jumps to 44.5 billion reais, the worst since at least 2004.While firms including Fidelity and BlackRock have been overweight Brazil equities as the benchmark Ibovespa climbed more than 30% in 2019, most offshore investors remain skittish. The slower-than-expected pace of growth in Latin America’s largest economy discouraged foreigners, burned after emerging markets from India to Argentina didn’t deliver on pledges of reforms. Local investors, hungry for returns as interest rates fall to record lows, have picked up the slack.“Foreigners didn’t get as excited as locals about Brazil’s rally,” said Pedro Sales, a Verde Asset Management SA partner who manages local equity investments. “The Brazilian stock market has become much more compelling to domestic investors.” Lower rates have been fueling a migration from fixed-income products to higher-yielding investments. With Brazil’s benchmark Selic now at 4.5%, from 14% just a few years ago, locals have increasingly sought alternatives to their traditional investments of government bonds and bank savings accounts. Retail investors accounted for more than 18% of local stock trading last year, the highest portion since at least 2013, according to data from the exchange.Early signals of accelerating growth in Brazil have been emerging in the past few months. Since gross domestic product surprised to the upside in the third quarter, retail sales, industrial production and job creation data also came in better than expected.The year started off on a positive note for Brazilian stocks, with the Ibovespa up about 0.4%. The country’s main stock exchange-traded fund has just seen the biggest weekly inflow in seven years, and foreigners trimmed their short positions in futures contracts in the first sessions of 2020. Strategists are optimistic the Ibovespa will extend its record-setting rally, which would mark a fifth straight year of gains.“Brazil is well poised to get a lot of investor interest going forward,” said Ray Zucaro, the chief investment officer at RVX Asset Management in Miami. He points to a combination of a stable currency, lower interest rates and compelling valuations as factors that should help Brazil stand out in Latin America, which has been dealing with increased political turbulence.Foreigner investors are “are taking longer looks and doing their homework” when it comes to Brazil, Zucaro said.\--With assistance from Veronica Vilarinho.To contact the reporter on this story: Vinícius Andrade in São Paulo at email@example.comTo contact the editors responsible for this story: Brad Olesen at firstname.lastname@example.org, Julia Leite, Brendan WalshFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.
* Trump to restore tariffs on metal imports from Brazil, Argentina * Latam FX gain as dollar drops after weak U.S. manufacturing data * Brazil stocks rise after strong manufacturing data * Chilean peso firms as central bank intervention kicks in By Susan Mathew Dec 2 (Reuters) - A dollar weakened by poor U.S. economic data helped Latin American currencies brush off the re-imposition of U.S. tariffs on steel and aluminum imports from Brazil and Argentina on Monday. Brazil's real firmed 0.4% with a spot auction by the central bank supporting the currency, while the Argentine and Mexican pesos were flat against a dollar that slid on weak U.S. manufacturing data. Surprising officials in the two South American countries, U.S. President Donald Trump said on Monday he would restore tariffs on U.S. steel and aluminum imports, accusing them of devaluing their currencies to the detriment of U.S. farmers.
Argentine assets are likely in for more pain if President Mauricio Macri is turned out of office in Sunday’s election, but broader Latin American markets are likely to continue shrugging off political developments in Argentina and unrest elsewhere in South America, says one economist.
Adding to overall optimism, the U.S. Trade Representative's office said U.S. and Chinese trade officials were "close to finalizing" some parts of an agreement.
The currency had hit a two-month high of 3.99 per dollar earlier in the session. The Mexican peso pulled back 0.2%, but held near a three-month high hit earlier this week, while the Colombian peso and the Argentine peso slipped.
Most other currencies in the region also gained, with Colombia's peso hitting a five-week high, while Chile's currency jumped as much as 0.9%. A third day of gains for Brazil's real came after the Senate gave its final seal of approval for a landmark pension reform on Wednesday. The central bank on Thursday said Brazil's current account deficit as a share of gross domestic product widened to 2.05% in the 12 months to September.
Brazil's Senate on Wednesday gave its final seal of approval to a sweeping overhaul of the country's pension system, bringing to a close months of political wrangling over the government's keystone policy to stabilize public finances and boost growth. Senate President Davi Alcolumbre said that should be done by Nov. 19, once President Jair Bolsonaro returns from a series of official visits to Asia. Brazil's benchmark Bovespa stock index rose to a fresh record high just shy of 108,000 points, and the real firmed to around 4.03 per dollar, the strongest in six weeks.
LATAM's surge saw Chile stocks jump up to 2.5% during the session and hit their highest in almost five months, outperforming regional peers. Delta bought 20% of LATAM for $1.9 billion in a major new airline partnership, but also sold its stake in Brazil's largest airline Gol, which sent shares 6.5% lower followed closely by Gol's loyalty program, Smiles Fidelidade, which slid 5.3%.
Mexico's main stock index dipped 0.2%. The country's central bank cut the benchmark interest rate by 25 basis points for a second time this year, to 7.75%. "It's bit on the dovish side, which means there are more cuts ahead, which is reasonable," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman.
With the dollar on the backfoot, the Mexican peso jumped 1% to touch a three-week high on Friday, while currencies of Brazil, Colombia, Chile and Argentina rose between 0.43% and 0.86%.
MSCI's index of Latin American stocks rose 1.6%, tracking gains in global stock markets after the world's two largest economies agreed to hold high-level talks in early October. Brazil's Bovespa index jumped 1.2%, boosted by gains in banking shares as central bank President Roberto Campos Neto said the economy should recover in the second half of year, most likely in the fourth quarter. Campos Neto also said inflation in Brazil is well-anchored over the short-, medium- and long-term horizons, giving policymakers room to reduce interest rates further.
World stocks will keep rising over the coming year, according to the latest Reuters polls of strategists, but wild gyrations are likely in the lift from expected central bank policy easing and drag from developments in the U.S.-China trade war. Fears of a global economic slowdown as the world's largest economies become more deeply locked in a tit-for-tat trade tariff war unnerved world stocks last year, with all the indexes polled by Reuters, barring India and Brazil, in the red in 2018. While stocks have recovered globally so far this year, the latest polls of nearly 300 equity strategists showed nine of the 17 indexes polled on would not recoup last year's heavy losses by end-2019.
Economic activity in Brazil fell slightly in the three months to June, a central bank indicator showed on Monday, suggesting Latin America's largest economy may have slipped into recession. The central bank's IBC-Br economic activity index, a leading indicator of gross domestic product (GDP), fell 0.13% in the second quarter, after a 0.68% drop in the three months to March. A recession is typically defined as two consecutive quarters of negative economic growth.