BlackRock and T. Rowe Buy Brazil Bargains After Stock Slump

(Bloomberg) -- BlackRock Inc. and T. Rowe Price Group Inc. are among global asset managers that have built up their holdings on some Brazilian companies recently after a dismal year for stocks pushed valuations to the lowest in over a decade.

BlackRock boosted its stake last month in digital lender Banco Inter SA and Sendas Distribuidora SA, the food retailer known as Assai, while T. Rowe Price increased holdings of retailer Magazine Luiza SA, according to a review of corporate filings. Brazilian law requires companies to disclose when stakeholders raise ownership of a company to 5% or more of its total capital.

The asset managers joined other foreign investors that piled into Brazilian stocks after the Ibovespa index posted its first annual decline since 2015, making it the world's second-worst-performing equity benchmark, with stocks hitting 7.4 times forward earnings, the lowest since 2009. Offshore investors poured 32.5 billion reais ($6.2 billion) into Brazilian stocks in January, the second-largest monthly inflow since at least 2008.

“We have been selectively adding to Brazilian equities since the end of last year,” said Ed Kuczma, who manages over $1 billion in Latin American equities for BlackRock. “Brazilian equities are under-owned by global investors, in my opinion, and the current valuations reflect a lot of uncertainty.”

Brazilian stocks were hit by several factors last year: anticipation of weaker growth, higher interest rates and election uncertainty, along with pressure from domestic funds that were forced to sell as they struggled with redemptions.

The Ibovespa rebounded 7% last month, its best month in over a year.

‘Quite Extreme'

“There's a lot of value in Brazil,” Verena Wachnitz, a London-based portfolio manager at T. Rowe Price, said in an interview. “It's hard to know where the bottom is, but a lot of the bad news is on the price,” she said, declining to comment on specific stock investments.

Pablo Riveroll, the head of Latin American equities at Schroders in London, also increased his exposure to the commodity-heavy country at the beginning of the year. “Valuations got quite extreme,” he said.

“In an inflationary environment, commodities are well protected and we like oil, iron ore, steel and aluminium,” Riveroll said.

Miner Vale SA and oil producer Petroleo Brasileiro SA are up 9% and 14%, respectively, this year.

Domestic fund managers are also snapping up opportunities in the local market. One of Brazil's oldest asset-management firms, Dynamo Administracao de Recursos Ltda, reopened its flagship fund for new money in late January after being closed to investors since the onset of the pandemic.

Dynamo scooped up a 10% stake in homebuilder Cyrela Brazil Realty SA Empreendimentos e Participacoes, which is up 36% from a two-year low.

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