Vontobel picks Brazil as top choice for emerging market investments

By Gabriel Araujo

SAO PAULO, Jan 31 (Reuters) - An asset manager for Switzerland's Vontobel Quality Growth said Brazil is one of the most attractive investment opportunities in emerging markets, predicting a continuing positive trend for the country's equities and favorable economic backdrop.

Even after a rally that saw stock index Bovespa hit record highs in late 2023, some investors believe Brazil's equities still have room to run amid discounted valuations, stronger-than-expected growth and falling interest rates.

Vontobel Quality Growth, a boutique within Swiss asset management giant Vontobel, has some $26 billion in assets under management.

Brazil "really ticks a lot of boxes for what we're looking for on a global emerging markets level," Vontobel's portfolio manager Ramiz Chelat told Reuters, adding he is especially optimistic about consumer, financial and software plays.

Low unemployment levels, the ongoing monetary easing cycle, income growth and the consumer credit cycle now past its worst are factors supporting the consumer sector, Chelat said, naming drugstore chain Raia Drogasil and rent-a-car giant Localiza among potential outperformers.

Faster growth financials such as Nubank and BTG Pactual are also well-positioned in the current scenario, as well as software firm Totvs, he added in an interview.

"We're getting a combination of high quality businesses and management teams at attractive valuations," Chelat said about Brazil. "That's unique, I think, in an EM context to have all those factors generally supportive, plus monetary policy."

Risks include Brazil's fragile fiscal position, with markets skeptical about the chances of the government fulfilling its pledge of eliminating its primary budget deficit this year.

"But I think we're still heading in the right direction," Chelat said.

He noted that the fiscal constraint shown by leftist President Luiz Inacio Lula da Silva's administration in his first year in office has been better than markets expected 12 months ago. (Reporting by Gabriel Araujo; Editing by Steven Grattan, Elaine Hardcastle)