GIC Pte, Singapore’s sovereign wealth fund, is buying stakes in Brazilian companies in a sign of confidence the world’s second-largest emerging market will overcome slower growth.
GIC bought 5.02 percent of communications technology provider Linx SA (LINX3), according to a March 10 filing by Linx. This month, it increased its stake in Sao Paulo-based food processor BRF SA (BRFS3) and in October agreed to invest in water and sewage treatment company Aegea Saneamento e Participacoes SA.
The investments by GIC, which manages more than $100 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 percent in 2015 from 1.9 percent this year, according to data compiled by Bloomberg. That’s more than double the rate in 2012.
“Being a long-term investor, GIC is not scared away by short-term volatility,” said Christopher Balding, an associate professor at Peking University HSBC School of Business in Shenzhen in southern China, 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 in an e-mailed response to Bloomberg News queries.
Supply-Side Trends
Lim Chow Kiat, group chief investment officer at GIC, said at the Investment Management Association of Singapore conference today that he sees opportunities in bigger emerging markets.
There are what “you may call supply-side trends going on, you see industry consolidation, you see the penetration rate for certain products continue to be increasing,” he said.
“So many companies in these developing countries continue to benefit from these type of trends, despite the macro concerns, despite the policy and political uncertainty.”
GIC is 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 including in London, Mumbai, Shanghai, Tokyo and New York.
Shares in Sao Paulo-based Linx have gained 72 percent since the company’s initial public offering in February last year. They closed at 46.39 reais yesterday, valuing GIC’s stake at 108 million reais ($46 million).
BRF Stake
GIC increased its stake in BRF to 4.4 percent from 3.8 percent this month, according to a March 4 filing with the U.S. Securities and Exchange Commission.
That would value its stake in BRF at about 1.7 billion reais. The Singapore state-owned fund owns a 4 percent stake in Brazil’s biggest clearinghouse Cetip SA-Mercados Organizados, valued at about 260 million reais, according to data compiled by Bloomberg.
It holds a 5.9 percent stake in retail landlord and developer Aliansce Shopping Centers SA (ALSC3) and a 5 percent stake in property developer Direcional Engenharia SA. (DIRR3)
“GIC is investing in consumer-oriented companies because they see a booming consumer market in middle-income countries like Brazil,” said Balding, who wrote “Sovereign Wealth Funds: The New Intersection of Money and Politics,” published in 2012.
Brazil’s Bovespa index is trading at 8.99 times estimated earnings, the lowest since June 2012, after the benchmark fell 15 percent over the past six months, compared with an 8.7 percent gain in the MSCI World Index.
Best Time
“This is the best time to buy assets in Brazil,” said Song Seng Wun, a Singapore-based economist at CIMB Group Holdings Bhd.
GIC’s 20-year annualized real rate of return, or gains on top of global inflation that it uses as its main metric, was 4 percent in the 12 months through March 31, up from 3.9 percent the previous year, the state fund said in its latest annual report in August.
Four percent 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 percent in the U.S. and 11 percent in the euro area.
The Singapore state fund is the eighth biggest in the world, according to the Las Vegas-based Sovereign Wealth Fund Institute, which estimates its assets at $285 billion.
Unlike Singapore’s other state-owned investment company Temasek Holdings Pte, 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 percent from 10.50 percent 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 Song. “The country will return to normal growth rates over the coming years.”
bloomberg.com
GIC bought 5.02 percent of communications technology provider Linx SA (LINX3), according to a March 10 filing by Linx. This month, it increased its stake in Sao Paulo-based food processor BRF SA (BRFS3) and in October agreed to invest in water and sewage treatment company Aegea Saneamento e Participacoes SA.
The investments by GIC, which manages more than $100 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 percent in 2015 from 1.9 percent this year, according to data compiled by Bloomberg. That’s more than double the rate in 2012.
“Being a long-term investor, GIC is not scared away by short-term volatility,” said Christopher Balding, an associate professor at Peking University HSBC School of Business in Shenzhen in southern China, 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 in an e-mailed response to Bloomberg News queries.
Supply-Side Trends
Lim Chow Kiat, group chief investment officer at GIC, said at the Investment Management Association of Singapore conference today that he sees opportunities in bigger emerging markets.
There are what “you may call supply-side trends going on, you see industry consolidation, you see the penetration rate for certain products continue to be increasing,” he said.
“So many companies in these developing countries continue to benefit from these type of trends, despite the macro concerns, despite the policy and political uncertainty.”
GIC is 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 including in London, Mumbai, Shanghai, Tokyo and New York.
Shares in Sao Paulo-based Linx have gained 72 percent since the company’s initial public offering in February last year. They closed at 46.39 reais yesterday, valuing GIC’s stake at 108 million reais ($46 million).
BRF Stake
GIC increased its stake in BRF to 4.4 percent from 3.8 percent this month, according to a March 4 filing with the U.S. Securities and Exchange Commission.
That would value its stake in BRF at about 1.7 billion reais. The Singapore state-owned fund owns a 4 percent stake in Brazil’s biggest clearinghouse Cetip SA-Mercados Organizados, valued at about 260 million reais, according to data compiled by Bloomberg.
It holds a 5.9 percent stake in retail landlord and developer Aliansce Shopping Centers SA (ALSC3) and a 5 percent stake in property developer Direcional Engenharia SA. (DIRR3)
“GIC is investing in consumer-oriented companies because they see a booming consumer market in middle-income countries like Brazil,” said Balding, who wrote “Sovereign Wealth Funds: The New Intersection of Money and Politics,” published in 2012.
Brazil’s Bovespa index is trading at 8.99 times estimated earnings, the lowest since June 2012, after the benchmark fell 15 percent over the past six months, compared with an 8.7 percent gain in the MSCI World Index.
Best Time
“This is the best time to buy assets in Brazil,” said Song Seng Wun, a Singapore-based economist at CIMB Group Holdings Bhd.
GIC’s 20-year annualized real rate of return, or gains on top of global inflation that it uses as its main metric, was 4 percent in the 12 months through March 31, up from 3.9 percent the previous year, the state fund said in its latest annual report in August.
Four percent 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 percent in the U.S. and 11 percent in the euro area.
The Singapore state fund is the eighth biggest in the world, according to the Las Vegas-based Sovereign Wealth Fund Institute, which estimates its assets at $285 billion.
Unlike Singapore’s other state-owned investment company Temasek Holdings Pte, 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 percent from 10.50 percent 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 Song. “The country will return to normal growth rates over the coming years.”
bloomberg.com
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