BlackRock’s Gerardo Rodriguez Regordosa says he believes that the markets are punishing Brazil for policy mistakes and that this is likely to lead to a shift in economic policy by the government of Latin America’s biggest economy.
“It is difficult for countries, especially those that have important external borrowing needs,” says Rodriguez, the former undersecretary of finance and public credit in Mexico, who joined asset manager BlackRock in April as managing director and senior investment strategist of its emerging markets team. “[These countries] are more vulnerable to the correction that we are seeing. Investors are very focused on those countries that have either current account deficits, have a less institutional backdrop or have shown some hesitation in policymaking by which the government has introduced an element of concern to the marketplace.”
Rodriguez identified Turkey, Brazil and South Africa as examples of countries that are suffering from poor investor sentiment. When asked specifically if he believed Brazil’s policymakers would have to adapt their approach in response to the falling currency and general negative sentiment towards the country, he agreed. “The lack of reform momentum is being questioned at a time when the environment is more challenging and so the policy response is going to be the only way to generate a better economic growth environment,” says Rodriguez. “Hopefully we can see that the policy response function is going to operate in the right direction and these market corrections that we are seeing are actually going to lead governments to adjust policymaking in the right way in order to help the economy withstand better the test to which they are being submitted.”
BlackRock declined to talk about specific investments, but according to Bloomberg the asset manager had reduced its exposure to the potential default of bonds issued by OGX Petroleo & Gas Participações. BlackRock’s most recent regulatory filings show it cut its holdings to $69 million – a reduction of about 70% of its holding. This contrasts with Pimco, which kept buying OGX paper – adding $170 million in the six months leading up to March 2013, taking its total to $576 million – as the price of OGX’s 2018 bonds fell to under 20 cents on the dollar by the end of August, pricing an expected default. Pimco is now believed to be one of the lead investors that has mandated Rothschild to advise on a potential debt restructuring.
For the full article go to: Euromoney Magazine