BlackRock Betting on Silva Win in Brazil Is Bullish on Petrobras

BlackRock Betting on Silva Win in Brazil Is Bullish on Petrobras 

This article by Christiana Sciaudone for Bloomberg may be of interest to subscribers. Here is a section:  Brazil votes next month on whether to reinstate incumbent President Dilma Rousseff or elect Marina Silva. The two are running in a statistical tie with a Vox Populi poll published last week showing Silva would get 42 percent of votes in a runoff compared with 41 percent for Rousseff.

“We’re overweight because we’re looking and we’re continuing to look for change” Landers said in a Sept. 12 interview at BlackRock’s New York office. “We have good reasons to believe that the election will go towards Marina.”

Landers said Silva is signaling that she will allow the private sector to be “in charge of its own destiny” instead of trying to control every aspect of the economy and that she will bring inflation down. Rousseff has been using Petrobras and other state companies as fiscal and monetary policy tools driving their value down Landers said.

As part of Rousseff’s effort to contain inflation she limited Petrobras’s ability to increase fuel prices.

If Rousseff wins in October Petrobras will return to the nine-year low it hit in March Landers said and BlackRock would reduce its exposure to Brazil. “We would significantly have to rethink our portfolio” Landers said. The Latin America fund shrank from $4.5 billion in December on flows.

Petrobras is the second-largest holding in Brazil after Itau Unibanco Holding SA in BlackRock’s Latin America fund. Earlier this year various BlackRock funds bought 500600 shares of Petrobras as the Rio de Janeiro-based company is known according to data compiled by Bloomberg.

Eoin Treacy's view 

The Brazilian Bovespa Index pulled back sharply from early this month in the aftermath of polls that showed Rousseff with a wider lead than many had expected. This year has seen a number of heavily contested elections which have seen pro-reform candidates assume power. If Brazil votes for Silva it will probably be seen as another green light for foreign investors to return to Brazil after a particularly difficult period. 

Australians Face Repayment Shock on High-Risk Lending 

This article by Narayanan Somasundaram and Nichola Saminather for Bloomberg may be of interest to subscribers. Here is a section: Prices in our area have increased about a quarter of a million dollars just in the past couple of years” said Dowd of broker Ray White Baulkham Hills adding that the number of people choosing to sell their homes at auction is at a 15-year high. “We’ve seen a sharp increase in auctions in just the past three months because people are seeing the exceptional results others are getting and saying ‘I want what he has.’”

Martin North Sydney-based principal at researcher Digital Finance Analytics said inexpensive mortgages have emboldened households to take bigger loans that they may have trouble repaying.

“There’s no doubt the low rates have got many borrowers out of jail” he said.

A 2 percentage point rise in interest rates would put more than 25 percent of households in mortgage stress within 12 months he said. They would need to cut other expenses and increase credit card debt to keep up with repayments.

“It’s parallel to what happened in the U.S. before the global crisis” when easy credit to high-risk borrowers inflated a housing bubble that burst creating a wave of defaults.

Genworth Mortgage Insurance Australia Ltd. the country’s largest mortgage insurance provider for lenders is taking on more risky policies and while house prices have gone up “froth is being mistaken for beer” CLSA Ltd.’s Sydney-based analysts led by Jan van der Schalk said in an investor note Sept. 10.

Lenders mortgage insurance covers losses when homeowners default and helps lenders to recoup costs.

Prepayment Shock

Loans to investors accounted for 33.8 percent of all mortgages in the three months through June the highest level since March 2009 APRA figures show. Outstanding interest-only loans - where borrowers can postpone repayment of the principal for a set number of years - increased to 35 percent the highest since APRA began reporting the data.

“For those borrowers who’ve taken out interest-only loans there’s always a prepayment shock when the interest-only period ends” said Serov at Moody’s which forecasts rates will rise over the next 18 months. “In a rising rate environment that repayment shock is greater and delinquency rates for those loans would be greater.”

Eoin Treacy's view 

Record low interest rates represent an ideal time to borrow on fixed rates since one can lock in the risk one is taking on future central bank decisions. However the temptation when credit is cheap is to borrow too much in order to purchase a home whose price has accelerated as everyone else chases the same market.

The saving grace of cities like Sydney and London has been the dearth of building which has contained supply and supported high prices. The attraction of both cities for foreign investors has also been a considerable source of additional demand which has forced locals to compete with wealthy foreigners. Record low interest rates mean that taking out an adjustable rate mortgage today is straight momentum speculation.   

Sugar Has Longest Slump This Year Amid Expanding Global Glut 

This article by Luzi Ann Javier and Marvin G. Perez for Bloomberg may be of interest to subscribers. Here is a section: Anticipation of a large world crop and supplies are putting pressure on prices” Boyd Cruel a senior market analyst at Vision Financial Markets in Chicago said in a telephone interview. “The market has also been weighed down by expectations for large deliveries” from Thailand he said.

Raw sugar for March delivery fell 0.3 percent to settle at 16.27 cents a pound at 1:07 p.m. on ICE Futures U.S. in New York. The contract had a ninth straight loss the longest streak since Dec. 9.

Traders in Thailand the second-biggest exporter plan to ship sugar for delivery against New York futures for the first time since 2012. About 625000 tons probably will be supplied against the October contract equal to 16 percent of this year’s surplus according to a Bloomberg survey of analysts last month.

India the second-largest producer may export 3 million tons in the season starting next month the National Federation of Cooperative Sugar Factories said today.

Money mangers more than doubled their bets on price declines last week U.S. government data show. The net-short position reached 31873 futures and options contracts as of Sept. 9 compared with 14043 a week earlier.

 Eoin Treacy's view 

The inclement weather than prevailed between 2011 and 2013 sent soft commodity prices higher and acted as an incentive for farmers to plant more. With supply disruptions easing the outlook for yields has improved and prices have fallen. This has been particularly evident in New York sugar prices which hit a new four- year low last week. 

The Chart Seminar 

Eoin Treacy's view 

I am delighted to announce that we now have our venues secured for the Chart Seminar in both Chicago and London later this year.

September 29th and 30th will find me presenting The Chart Seminar at The University Club of Chicago. Established in 1887 by university graduates who wanted a special place where they could enjoy intellectual pursuits the University Club of Chicago will provide the perfect collegiate atmosphere for The Chart Seminar.

November 13th and 14th brings me to London and the rarefied East India Club. Founded in the middle of the 19th century its original members were 'the servants of the East India Company and Commissioned Officers of Her Majesty's Army and Navy' returning from far flung lands.  As our London seminar always attracts delegates from around the world it seems a fitting venue to conduct The Chart Seminar.

To book your place please contact Sarah Barnes at sarah@fullertreacymoney.com

The full rate for The Chart Seminar is £950 + VAT. (Please note US Australian and Asian delegates as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

Private Seminars and Partnering Opportunities

We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies. 

2014 marks a number of changes in how we organise the Chart Seminar.  In order to facilitate more venues we are open to partnering with other groups to market the event. If your organisation would like to arrange a seminar either internally or for your clients please do not hesitate to contact us.

Speaking Engagement 

Eoin Treacy's view 

I have agreed to give a talk to the Chicago chapter of the MTA on September 29th at 5:30pm. This will be at the Bloomberg offices at 111 South Wacker South Wacker Drive. 

52nd Annual Contrary Opinion Forum 

Eoin Treacy's view 

It has been my pleasure to accept an invitation to return to the Basin Harbor Club in Vermont to speak at the 52nd Annual Contrary Opinion Forum hosted by Fraser Asset Management between October 1st and 3rd. The Forum’s convivial atmosphere is something Mrs.Treacy and I look forward to not least because it gives us an opportunity to meet so many subscribers.