Brazil Hedge Fund Firm Sees 20% Upside in Local Stocks

Brazilian stocks are the most attractive asset in the local market and have room to run as Congress debates a key pension reform project that may be approved in the third quarter, according to Bahia Asset Management, a Rio de Janeiro-based firm that saw inflows surge last year.

The country’s equity risk premium -- the implied excess return for investing in shares over risk-free assets -- is trading around 5.5% versus its historical average of slightly below 4%, according to Gustavo Daibert, a partner and fund manager responsible for equities strategies at the firm. Assuming a scenario with real interest rates around 4%, stocks may gain another 20% by year-end to about 120,000 points on the Ibovespa benchmark index, he said.