➤ BlackRock believes a low interest rate environment will continue to push Brazilian investors into riskier assets, including stocks.
➤ The passage of fiscal reforms and privatizations could pave the way for a faster recovery and attract global liquidity in the post-pandemic.
➤ COVID-19 brought forward the social element of ESG, though the ecosystem is in its early stages in Brazil.
Carlos Takahashi was appointed CEO of Blackrock Brazil in March 2019 as the U.S. asset manager seeks to bolster its presence in Latin America’s biggest economy. Previously, he served as head of the largest asset manager in the country, Banco do Brasil’s DTVM.
BlackRock, which manages roughly 18 billion reais in ETFs and global funds in Brazil, is now looking to expand its offering by way of international ETFs. The asset manager is “very close” to obtaining regulatory approval to bring its global products to the Brazilian market, Takahashi told S&P Global Market Intelligence in an interview.
The company also sees potential for ESG related investments as the pandemic has underscored the importance of managing environmental and social risks. One of its funds currently tracks the performance of Brazilian companies with low levels of greenhouse emissions, with index weightings based on companies’ carbon efficiency.
S&P Global Market Intelligence: How has COVID-19 affected the ESG investing climate?
Takahashi: The discussion was already moving forward, but COVID-19 accelerated everything. The world was receiving lots of signals that there needed to be more concern about this issue. Previously, there were a lot of discussions on governance, independent board members, how to choose the right CEO for the company or whether to pay bonuses to executives. Climate risk was also moving. But I think that what COVID-19 did was to bring forward the social issues, especially inequality. Social issues impact everybody. Companies that were being mismanaged during the crisis, not establishing a good relationship with clients, suppliers or workers, were immediately exposed.
ESG investing is still in its early stages Brazil, with only a small fraction of AUM falling under its criteria. What are the challenges to push that forward?
You need the ecosystem as a whole to be well prepared. We have to have issuers, researchers, advisors and asset managers all following ESG factors, moving in the same direction. The market today in Brazil is still quite fragmented in this respect, and this is something that could slow down the ESG trend [compared to developed markets]. The other thing is the [lack of a] database. In Europe or the U.S. there is a track record, with more information and a longer history than the one we have in Brazil.
I think that in the future ESG will be the reality, not just a separate issue. ESG factors have to … transverse across every portfolio. But we are not there yet. And as with everything, it is better to start as soon as possible. That has been happening in Brazil. We have a lot of players trying to do business in ESG and that is a good thing.
How do you expect Brazil to come out of the COVID-19 crisis?
The COVID-19 crisis put even more liquidity into the global economy. Eventually, that liquidity will begin to search for opportunities. And that is a good reason to move forward with the [government’s fiscal] reform agenda now and take advantage of this. In Brazil, there are still lots of challenges in terms of social infrastructure. Water, sanitation, sewage. We have a good opportunity. With the needed reforms I think we can achieve a very interesting future faster than we imagine. But we need to act.
The central bank has voiced some optimism for a V-shaped recovery in Brazil. Do you share that view?
It is tough to choose a letter — whether a “V,” a “W” or an “L.” I think a lot will depend on how the government runs the upcoming agenda. Some important measures were taken last year, such as the pension reform. We are expecting a continuity of these reforms going forward, which will be key to really have a more positive perspective in terms of a recovery.
The pandemic in Brazil still seems to be quite severe, and the estimated economic impact from that seems to have worsened. But Brazil’s benchmark BOVESPA market index still managed to rebound sharply from its lows in late March. Why do you think that’s happening?
The high level of liquidity in Brazil has been sustaining markets and for this reason, the impact was not as bad as it was on the real economy, where unemployment and business closures made a huge impact. The Brazilian stock exchange is now above 100,000 points and very close to January levels. It has been quite better than expected.
Is there still a sense of opportunity at current prices? Even with the rebound, the BOVESPA is still down more than 30% year-to-date in U.S. dollar terms.
The exchange rate is quite high, so we are seeing foreign investors come to Brazil as an opportunity because prices are quite cheap in dollar terms. There are some sectors, like e-commerce or health, where that opportunity is clearer. The most relevant thing is for companies to have a solid combination of tech and their own line of business.
Is there a real risk of inflation ticking up, which presumably might threaten that market opportunity stemming from a low-rate environment?
We believe that this [low rate] environment is something that is here to stay. There is no way for inflation to accelerate in the short term. The interest rate is the key factor driving diversification in the financial market. Brazilian investors realized that in order to have better returns they needed to take more risk, and they have been using equities and corporate debt to do so. Now, we also see an opportunity for international diversification. It is a great moment for players like BlackRock.
Do you expect BlackRock’s growth in Brazil to come organically? Or might there be some acquisitions?
We have a great chance to continue to grow in an organic way. Due to the great scale that we have worldwide, we have the chance to bring our business [to] Brazilian investors and we do believe that now is the right time for this strategy. We are very close to [gaining] approval from the regulator; and with that, we can bring all of our international ETFs to Brazil in a very efficient way, and with local transparency. We see this is a great opportunity to grow our business here.
