13-03-2014, 08:35 AM
Long term or wrong term?
GIC's new investments show confidence in Brazil economy
Published on Mar 13, 2014
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GIC, Singapore's sovereign wealth fund, is buying stakes in Brazilian companies in a sign of confidence that the world's second-largest emerging market will overcome slower growth.
GIC bought 5.02 per cent of communications technology provider Linx SA, according to a March 10 filing by Linx.
This month, it increased its stake in Sao Paulo-based food processor BRF and in October, it agreed to invest in water and sewage treatment company Aegea Saneamento e Participacoes.
The investments by GIC, which manages over US$100 billion (S$127 billion) of assets, in Latin America's largest economy come as the government of Brazilian President Dilma Rousseff is combating inflation with interest rate increases, while sustaining growth.
Growth in gross domestic product is expected to accelerate to 2.5 per cent next year from 1.9 per cent this year, according to data compiled by Bloomberg. That is more than double the rate in 2012.
"Being a long-term investor, GIC is not scared away by short-term volatility," said Associate Professor Christopher Balding of Peking University HSBC School of Business in Shenzhen, who has researched sovereign wealth funds.
"Brazil is definitely one of the economies with the best middle- or long-term outlook in Latin America."
GIC declined to comment on its Brazil investments.
GIC is also planning to open an office in Sao Paulo, a person familiar with the matter said in June. That would add to its network of eight overseas offices including in London, Mumbai, Shanghai, Tokyo and New York.
Shares in Sao Paulo-based Linx have gained 72 per cent since the company's initial public offering in February last year. They closed at 46.39 Brazilian real yesterday, valuing GIC's stake at 108 million Brazilian real (S$58 million).
GIC increased its stake in BRF to 4.4 per cent from 3.8 per cent this month, according to a March 4 filing with the US Securities and Exchange Commission. That would value its stake in BRF at about 1.7 billion Brazilian real.
The sovereign wealth fund owns a 4 per cent stake in Brazil's biggest clearing house Cetip-Mercados Organizados, valued at about 260 million Brazilian real.
It holds a 5.9 per cent stake in retail landlord and developer Aliansce Shopping Centres and a 5 per cent stake in property developer Direcional Engenharia.
"GIC is investing in consumer-oriented companies because they see a booming consumer market in middle-income countries like Brazil," said Prof Balding, who wrote Sovereign Wealth Funds: The New Intersection Of Money And Politics.
Brazil's Bovespa index is trading at 8.99 times estimated earnings, the lowest since June 2012, after the benchmark fell 15 per cent over the past six months, compared with an 8.7 per cent gain in the MSCI World Index.
"This is the best time to buy assets in Brazil," said Singapore- based economist Song Seng Wun of CIMB Group Holdings.
GIC's 20-year annualised real rate of return, or gains on top of global inflation that it uses as its main metric, was 4 per cent in the 12 months to March 31, up from 3.9 per cent the previous year, the state fund said in its latest annual report.
Four per cent of GIC's assets were in Latin America as of March 31, according to the report, unchanged from the previous year. That compared with 36 per cent in the US and 11 per cent in the euro area.
GIC is the eighth biggest in the world, according to the Las Vegas-based Sovereign Wealth Fund Institute, which estimates its assets at US$285 billion.
Unlike Singapore's other state-owned investment company Temasek Holdings, GIC almost exclusively invests outside the city-state. It also has a lower share of listed equities in its portfolio.
While Brazil's economy expanded more than analysts' estimates in the fourth quarter, both consumer and industrial confidence remain low. The central bank raised the benchmark Selic rate to 10.75 per cent from 10.5 per cent last month, half the pace of the previous six meetings, to curb inflation.
"GIC is looking beyond the current bump in Brazil's economy," said CIMB's Mr Song.
"The country will return to normal growth rates over the coming years."
BLOOMBERG
GIC's new investments show confidence in Brazil economy
Published on Mar 13, 2014
newspostPurchase this article for republication
photobankBuy SPH photos
GIC, Singapore's sovereign wealth fund, is buying stakes in Brazilian companies in a sign of confidence that the world's second-largest emerging market will overcome slower growth.
GIC bought 5.02 per cent of communications technology provider Linx SA, according to a March 10 filing by Linx.
This month, it increased its stake in Sao Paulo-based food processor BRF and in October, it agreed to invest in water and sewage treatment company Aegea Saneamento e Participacoes.
The investments by GIC, which manages over US$100 billion (S$127 billion) of assets, in Latin America's largest economy come as the government of Brazilian President Dilma Rousseff is combating inflation with interest rate increases, while sustaining growth.
Growth in gross domestic product is expected to accelerate to 2.5 per cent next year from 1.9 per cent this year, according to data compiled by Bloomberg. That is more than double the rate in 2012.
"Being a long-term investor, GIC is not scared away by short-term volatility," said Associate Professor Christopher Balding of Peking University HSBC School of Business in Shenzhen, who has researched sovereign wealth funds.
"Brazil is definitely one of the economies with the best middle- or long-term outlook in Latin America."
GIC declined to comment on its Brazil investments.
GIC is also planning to open an office in Sao Paulo, a person familiar with the matter said in June. That would add to its network of eight overseas offices including in London, Mumbai, Shanghai, Tokyo and New York.
Shares in Sao Paulo-based Linx have gained 72 per cent since the company's initial public offering in February last year. They closed at 46.39 Brazilian real yesterday, valuing GIC's stake at 108 million Brazilian real (S$58 million).
GIC increased its stake in BRF to 4.4 per cent from 3.8 per cent this month, according to a March 4 filing with the US Securities and Exchange Commission. That would value its stake in BRF at about 1.7 billion Brazilian real.
The sovereign wealth fund owns a 4 per cent stake in Brazil's biggest clearing house Cetip-Mercados Organizados, valued at about 260 million Brazilian real.
It holds a 5.9 per cent stake in retail landlord and developer Aliansce Shopping Centres and a 5 per cent stake in property developer Direcional Engenharia.
"GIC is investing in consumer-oriented companies because they see a booming consumer market in middle-income countries like Brazil," said Prof Balding, who wrote Sovereign Wealth Funds: The New Intersection Of Money And Politics.
Brazil's Bovespa index is trading at 8.99 times estimated earnings, the lowest since June 2012, after the benchmark fell 15 per cent over the past six months, compared with an 8.7 per cent gain in the MSCI World Index.
"This is the best time to buy assets in Brazil," said Singapore- based economist Song Seng Wun of CIMB Group Holdings.
GIC's 20-year annualised real rate of return, or gains on top of global inflation that it uses as its main metric, was 4 per cent in the 12 months to March 31, up from 3.9 per cent the previous year, the state fund said in its latest annual report.
Four per cent of GIC's assets were in Latin America as of March 31, according to the report, unchanged from the previous year. That compared with 36 per cent in the US and 11 per cent in the euro area.
GIC is the eighth biggest in the world, according to the Las Vegas-based Sovereign Wealth Fund Institute, which estimates its assets at US$285 billion.
Unlike Singapore's other state-owned investment company Temasek Holdings, GIC almost exclusively invests outside the city-state. It also has a lower share of listed equities in its portfolio.
While Brazil's economy expanded more than analysts' estimates in the fourth quarter, both consumer and industrial confidence remain low. The central bank raised the benchmark Selic rate to 10.75 per cent from 10.5 per cent last month, half the pace of the previous six meetings, to curb inflation.
"GIC is looking beyond the current bump in Brazil's economy," said CIMB's Mr Song.
"The country will return to normal growth rates over the coming years."
BLOOMBERG