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Non-Tech : The Brazil Board -- Ignore unavailable to you. Want to Upgrade?

To: Julius Wong who wrote (272)	5/5/2011 4:56:42 PM
From: elmatador	Respond to of 2520

Investors Cut Back On Brazil's Real As Government Moves Curb By Erin McCarthy and Anjali Cordeiro Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The Brazilian government's recent measures to manage its currency are creating a shortage of dollars in the country, driving up the cost of obtaining them in Brazil and making it less attractive to hold long positions in the real. With rates to access dollars onshore rising in response to these policy actions, the implied yield on the Brazilian real--defined as the differential between the dollar rate and the higher rate that investors get paid for holding reais--has narrowed. That is leading some fund managers to do an about-turn on the long-favored Latin American currency. On Wednesday, the real hit its weakest level against the dollar in nearly a month, trading near BRL1.60 per dollar. "What used to be one of the highest-yielding emerging-market currencies [is now] a lot lower," said John Peta, portfolio manager at Acadian Asset Management. At the root of these declining implied yields are the Brazilian central bank's heavy dollar purchases and the government's recent measures to curb fund inflows, which have left few dollars available locally. The Cupom Cambial, the rate at which financial institutions in Brazil borrow dollars from each other, hit a high of 6.25% on the July 11 contract earlier this week from 1.8% at the end of 2010, HSBC strategist Maya Hernandez said. That has taken a chunk out of the nominal rates on the local currency, even though these are based off the central bank's 12% benchmark Selic rate, among the highest in the world. The average one-month implied yield--the payout for a "long" position on the Brazilian real--has more recently fallen to about 4.72%, she said, far below the 7.8% average seen over the last twelve months. "One of the attractions of the Brazilian real has always been the yield," said Adnan Akant, head of foreign exchange and managing director at money manager Fischer Francis Trees & Watts, a New York unit of BNP Paribas. "But now that [policymakers have] introduced these measures, you can see that the forward interest rate...is no longer as attractive." Foreign investors typically trade the real in the non-deliverable forward market. As part of an effort to curb inflows, the government recently extended a 6% tax on short term foreign loans of up to two years. While the government's measures haven't succeeded in preventing the real from appreciating, it does seem to have reduced the relative attraction of the currency. Akant said the Brazilian real still remains in his firm's high-yielding currency basket, but has fallen behind what Hungary, South Africa and Turkey's currencies pay in terms of the implied yields that investors earn when they take long position in them. Acadian Asset Management's Peta said his firm also recently cut back their position on the real to neutral from overweight because of the downward shift in the currency's yields. "Even though their short-term rates are very high, when you buy the currency in the forward market normally you would get that interest-rate differential...but because of the measures they've put in place, that has distorted the market," he said. For the future, a major selloff in the real or a restoration of the implied yields might make the currency more appealing, he said. Over the long term, the Brazilian real still remains a relatively attractive investment, fund managers and analysts said. That is because inflows into the country and economic growth are both expected to stay strong. -By Erin McCarthy and Anjali Cordeiro, Dow Jones Newswires; 212-416-2712; erin.mccarthy@dowjones.com