It has underperformed in the past year and has now been overtaken by China and Korea. This is partly due to index heavyweights. Shares in Petrobras, the largest company in Brazil, have fallen 14 per cent in the past year, while Samsung in Korea is up 48 per cent in the same period.
The best investments in the country are to be found away from the very-large caps, especially in sectors benefiting from president Dilma Rousseff’s more interventionist policies.
Consumer demand looks set to rise. The quality name in the retail sector is Lojas Renner, the clothing firm. A high margin business, including a consumer finance arm, it has a history of consistent delivery of earnings growth in the 20 per cent range.
We also like the education sector, which has been boosted by government policy. Our preferred name in the sector is Estacio. Last year its profits grew roughly 70 per cent and we expect an average growth rate of a further 25 per cent a year for the next three years.
The auto sector is another beneficiary of rising consumption and sales are set to accelerate this year. We are bullish on Mahle Metal, a maker of parts for cars and lorries, which should see double-digit earnings growth this year and whose shares pay a healthy dividend yield of roughly 7 per cent.
Julian Mayo is co-chief investment officer at Charlemagne Capital
